The Establishment Survey showed only a 74k increase in December – much weaker compared to 197k Bloomberg consensus (although more recently expectations probably moved higher still after the ADP surprising to the upside). The change in private payrolls was a little better at 87k while revisions to October and November were positive on net to the tune of 38k. In any event, there is no need to panic here. The monthly numbers are volatile so look at the 3-month average which is running at 172k. Moreover, it is hard to square December payroll growth with recent improvements in growth, housing and manufacturing so we would not be surprised if the weakness will get revised away in time.
Weather was probably the single most important reason why employment growth surprised so much to the downside. Just look at employment growth in the construction sector which fell 16k, compared to the 10k average increase in 2013. Although severe winter weather may be more likely to impact average weekly hours than employment, the BLS reported that more than a quarter of a million Americans were not at work because of the severe winter weather, the most for any December since 1977. According to the Household Survey, 273k was reportedly not working due to weather last month compared to the long-run average for December which is running at 166k. Consequently, this is unlikely to be the beginning of a new, much weaker labor market backdrop.
In 2013 as a whole, job growth averaged 182k, about the same as in 2012.
Meanwhile, the labor force participation rate fell again to 62.8% (was 63.0%) thus offsetting a change of the same magnitude in November. The labor force declined by 347k. As such, the jobless rate continued its rapid decent. The number of unemployed persons declined by 490k in December and the unemployment rate declined by 0.3 percentage points to 6.7%.
To be sure, this was a weak report. But this is just one month and other employment data has been on the strong side. In any event, we will not change the Fed call based on this alone. As such, we still expect the Fed to scale-back its bond-purchases at the set pace going forward.
SEB