Friday, January 4, 2013
This morning’s jobs report is good enough, but the market may not show much excitement as it would have had it not learned on Thursday that the Fed may not keep buying bonds for ever. We all knew that the Fed will have to change course some day. But Thursday’s minutes of the last Fed meeting showed that ‘many’ FOMC members expected the bond purchases to stop or slow before the end of 2013. That may be a bit too soon for many investors’ tastes and will likely dampen their enthusiasm for today’s jobs report.
But irrespective of what this morning’s December non-farm payroll report tells us about the likely course of Fed policy, it nevertheless provides a reassuring read on the nation’s labor market. We got a roughly in-line with expectations monthly jobs tally of 155K. While the consensus estimate did not rise much following the strong report from ADP on Thursday, the ‘whisper’ expectation was for a bigger number. The revision trend was on the positive side, with November revised to 161K from 146K and October raised to 137K from 138K. The unemployment rate remained unchanged at 7.8%; the November unemployment rate was originally reported at 7.7%.
Private sector jobs totaled 168K in December, modestly below November’s 171K level (the November was revised upwards from 147K). The December gains were concentrated in healthcare, food services, construction, and manufacturing. Jobs in the healthcare sector increased by +45K in December, bringing the full-year 2012 total to +338K. Construction jobs were up +30K in December after a drop the month before. Manufacturing jobs were up +25K in December, with full-year 2012 job gains in the factory sector at 180K, mostly earlier in the year. The average work week increased by 0.1 hours to 34.5 hours. Average hourly earnings increased by 7 cents to $23.73, with full-year 2012 average hourly earnings up 2.1%. The labor force participation rate remained unchanged at 63.6% in December.
Today’s report shows that the average monthly jobs tally has been fairly stable in the last two years. The monthly job gains tally in 2012 averaged 153K, the same pace as in the year before. While this is quite an underwhelming performance for the economy, it does show that negative backdrop of ‘Fiscal Cliff’ related uncertainty has not had much of a dampening effect on hiring trends. And that has to count as a positive in these times of uncertainty.
It’s not easy to handicap the course of Fed policy from this jobs report, but we shouldn’t expect any imminent changes given this month’s unemployment rate at 7.8%. That said, minutes of the Fed’s December meeting show a less than unqualified support for the central bank’s expanded bond-purchase program. It may be signaling a rougher patch for the market in the coming months if the QE program has to end this year, as the minutes show.
Director of Research