December jobs growth unexpectedly climbs, unemployment holds steady

Abu Hanifah

U.S. nonfarm payrolls rose by 216K in December, exceeding the +170K expected and accelerating from the 173K increase in November, which was revised from the original +199K estimate.

Government (+52K) and health care (+38K) sectors continued to see job gains during the month. Leisure and hospitality (+40K), social assistance (+21K) and construction employment (+17K) also added positions. Conversely, employment in transportation and warehousing (-23K) declined in December.

Unemployment was unchanged at 3.7% compared with the 3.8% consensus. The labor force participation rate, at 62.5%, slipped from 62.8% in the prior month.

The stronger pace of jobs and wage growth has raised “the risk of inflation overshooting to the upside,” said David Alton Clark, Investing Group Leader of ‘The Winter Warrior Investor.’ He thinks another interest-rate hike could be on the table “if the economy and unemployment remains strong.”

Stock index futures slipped after the hawkish jobs report, with Dow futures down 0.2%, S&P futures off 0.3% and Nasdaq futures -0.3%. Treasury bonds also fell, with the 10-year note (US10Y) dipping seven basis points to 4.06%.

Mark Hamrick, senior economic analyst at Bankrate, reckons the jobs data “is consistent with a soft landing, but it doesn’t guarantee that a recession will be avoided. While the headline payrolls gain came in stronger than expected at 216,000, the downward monthly revisions subtracting a total of 71,000 jobs for October and November take some shine off of the surprise.”

“Although the latest data is subject to future revisions, we can say for now that monthly jobs creation averaged 225,000 in 2023 and a more modest 193,000 over the previous six months. That’s down from the average of about 400,000 jobs added a month in 2022,” Hamrick noted.

Average hourly earnings increased by 0.4% from a month ago, more than the +0.3% consensus and matching the +0.4% advance in November. On a Y/Y basis, AHE rose by 4.1%, surpassing the +3.9% expected and November’s 4.0% increase.

The average workweek edged down by 0.1 to 34.3 hours in December, compared with the 34.4 consensus, the U.S. Labor Department said.

With the labor data running hot, traders trimmed their expectations for a March rate cut, although that still appears to be the most likely outcome as implied by fed funds futures pricing. The probability that the Fed will cut its benchmark lending rate by 25 bps (from the current 5.25%-5.50% target range) stood at 53.6%, down from 62.3% a day before, according to CME’s FedWatch tool.

Market participants are even more confident (95.3% vs. 93.8% on Thursday) that the central bank will hold rates steady at the January meeting.