Evening Brief – 01.05.24
Hot or Cold?
The U.S. labor market ended 2023 on solid ground as job growth continued to improve in December. Employers added 216,000 jobs, topping the 170,000 forecasted by economists. The unemployment rate held steady at 3.7%.
In total, the economy added about 2.7 million jobs over 2023, down from 4.8 million in 2022.
In another sign of the economy’s health, average hourly wages – a crucial metric of inflation – climbed 0.4% for the month and remained up 4.1% from this time a year ago. Both of these results were slightly higher than expected.
Most job gains were concentrated in a few sectors, with the largest gains in government (52,000), leisure and hospitality (40,000), and health care (37,700). Hiring in construction also increased.
However, the report also included significant downward revisions for the preceding two months, continuing a pattern evidenced over the past 10 of 11 months. Gains in October and November were revised down by 71,000 to 105,000 and 173,000, respectively, implying that the labor market is weaker than previously thought.
“Overall, solid headline numbers, but some of the dynamics under the hood are more worrying,” Martha Gimbel, a research scholar at Yale Law School who recently left the White House Council of Economic Advisors, wrote on X, the platform formerly known as Twitter. She pointed to the downward revisions as part of this.
The labor force participation rate fell unexpectedly to 62.5% from 62.8%, falling short of expectations for an unchanged print. This is because the number of people who are not in the work force increased from 99.695 million to 100.540 million.
The hotter-than-expected headline payrolls number and reacceleration in wage growth are hardly the ingredients for a dovish Fed that many had predicted in the final two months of 2023.
Looking at the market reaction, Bloomberg noted that bond investors got what they were looking for: a stronger-than-forecast report, including the headline number and a drop in the unemployment rate.
Rate-cut odds for March are declining and there is a ton of supply coming, including $110 billion in long-dated paper up for auction next week. Moreover, consensus for monthly corporate supply centers on about $160 billion. About $57 billion has already been priced. That leaves a lot of supply yet to absorb and could prompt a move higher in Treasury yields again.