December Jobs Report: Mixed Feelings
Anyone growing up in an old industrial town (I did) likes solid job markets. The Fed not so much. Services sticky in CPI.
The need for some good news was on display with a solid December employment report that followed on the heels of a JOLTS report that signaled very few signs of softening (see Employment: JOLT Stats Offer a Yawn 1-4-23). Today’s jobs report was more current since it was December data (the JOLTS report was for November). The growth in payrolls across a number of sectors did not signal much of a loosening in the headcount math. The worst performers were State Government and Temp Help services.
The market seized on the downtick in wage inflation to 4.6% in Dec 2022 from 5.1% in Nov 2022. The market is hoping this starts a favorable trend. The stock market celebrated but it will take steady job declines to move the needle on the Fed game plan. Taking the 4.6% wage inflation as a sign of loosening seems more about hope than real weakness. The 4.6% will need to be covered by goods and services pricing or end up in the form of earnings dilution. The downward revisions in Nov (from 263K to 256K) and Oct payrolls (from 284K to 263K) is still a solid hire rate after so much tightening.
The 3.5% unemployment rate and the “50+ year low” label, together with a record payroll count, typically would not cause a lot of worry over the PCE line in GDP growth. The hope is that the Fed can pull off the “no recession, lower inflation” target in a year where the consumer is still seeing real wages decline and some bellwether industries and employers are likely to see a need to trim headcount. As we discuss in the JOLTS and initial claims commentaries, the overall mix of jobs numbers show no hints of recession. Claims will need to climb materially to get there, and Layoffs will need to close the gap with Quits.
The above charts updates the payroll vs. job openings line again for the new Dec payroll numbers, but we discuss that in more detail earlier this week in the JOLTS commentary (see the links at the bottom of this note)
Among notable movers across the industry line items, we see a solid pop in Leisure and Hospitality (+67K) and Health Care/Social Assistance (+74K). These industries have dominated the headcount increases since the Dec 2007 cyclical peak ahead of the credit crisis. These jobs are important to the PCE lines but do not come with the multiplier effects one finds in Manufacturing. The Manufacturing line slowed in growth to only 8K after averaging 30K for 2022. Durables was up by 24K and Nondurables was lower by 16K. We will see how industrial indicators shape up as January proceeds and the 4Q22 earnings guidance gets underway.
We would flag the increase in Construction by 28K on the month since it flies in the face of logic of how one might expect to see these numbers move relative to rising rates. As we covered in our notes on residential housing starts and multifamily, the “houses under construction” tally continue to run at very high levels (see Market Menagerie: Home Starts – Will Housing Nerves Infect Multifamily? 12-21-22). The “under construction” count brings a lot of demand for skilled and semi-skilled construction workers. Specialty Trade Contractors were in the lead at 16.6K.
The path of the yield curve will determine whether residential activity can be stabilized as 2023 proceeds if interest rates out the curve do in fact decline and the economics of building improves with mortgages. Homebuilder equities have performed well vs. benchmarks in the second half after being brutalized in the first half, but the trend remains one of sustained weakness as the completions roll on in the building process.
The weakness in numbers was evident in Temp Help at -35K and State Government Education at -24K. These categories are not the flags that set off employment worries yet.
See also:
Employment Fixation: The Needle Will Move Very Slowly 1-3-23