The main components of the December employment report met broadly with our and consensus forecasts – payrolls rose 155k, close to expectations (Barclays: 150k, consensus: 152k) with net revisions adding 14k additional jobs. Meanwhile the unemployment rate was unchanged, albeit at an upwardly revised 7.8% (previously 7.7%). A solid gain in average hourly earnings and the workweek add to the positive elements but, all in all, the release provides no reason for us or policymakers to shift the view of the outlook.
In the detail of the establishment survey there was some volatility underlying the rise in payrolls. In particular the goods-producing private sector swung from a decline of 1k in November to growth of 59k in December, with gains in both construction (30k) and manufacturing (25k). This, in part, likely reflects some positive payback from a modest Hurricane Sandy effect the previous month. Meanwhile, private service sector jobs rose 109k, down from 172k in November, with the largest swing in the retail component (from +63k in November to -11k in December). This may also partly reflect temporary distortions concerning the East Coast storm and the holiday period. More broadly, we see the trend rate of job growth at about 150k (the average in Q4 was 151k), sufficient to gradually push the unemployment rate lower, in our view. Beyond the headline employment numbers, gains in average hourly earnings (+0.3% m/m) and the workweek (up 0.1 to 34.5) are encouraging signs that the labor market more broadly is firmly in recovery mode. Aggregate hours rose an annualized 1.5% q/q in Q4 (up from 1.0% in Q3) and the payroll proxy of income was up 3.5%, up from 2.8%.
Meanwhile, revisions to the household survey (reflecting the annual update of seasonal factors) left the unemployment rate one-tenth higher at 7.8% in November (other revisions were small and left the path of the unemployment rate basically unchanged). On an unrounded basis the rate rose modestly in December (to 7.849% from 7.753%) with labor force growth (192k) outstripping the household survey measure of employment growth (28k), although the participation rate was flat at 63.6%. In trend terms, both the unemployment and participation rates have moved broadly sideways since September. Our view remains that continued solid job growth will gradually push the unemployment rate lower in the coming months, with labor force participation unlikely to pickup materially.
Barclays Capital