Market Insider

December jobs report is not as disappointing as it appears

Key Points
  • The December jobs report missed the mark on job creation and wage growth, which some economists had expected to be even more robust than the consensus estimate.
  • The 145,000 jobs created, however, was strong enough to show a solid labor market contributing to economic growth.
  • Wage growth of 2.9% year over year missed the 3.1% estimate, but strategists said that is a plus since it means there is no inflation to bring the Fed back to an interest rate hiking regime.
Workers prepare orders in the kitchen at the newest Chopt Creative Salad Co., location in New York City, November 12, 2019.
Brendan McDermid

Job growth in December slowed and wage growth was lower than expected, but the government's employment report Friday assured markets that the labor market remains strong enough and inflation is not likely to be a problem in the near future.

The 145,000 nonfarm payrolls created in December were below the 160,000 expected by economists. Wage growth was expected at 3.1% year over year, but it came in at just 2.9%. Some economists had expected the report to beat those expectations.

"I think the overall picture is good," said Matt Orton, Carillon Tower Advisers vice president and portfolio specialist. "On top of that, you also avoid overall inflation on the economy. It gives the Fed the ability to hit pause, pushing any rate hike further down the road."

Stocks were higher after the report, with all the major indexes hitting new highs and the Dow surging above 29,000 for the first time. Treasury yields were mostly lower, with the 10-year at 1.84 percent.

"It was a little soft, but it doesn't change the narrative if you believe the economy is fine," said John Briggs, head of strategy at NatWest Markets. "It's good enough, and if you believe the economy is weakening, it's not really an advance on that. ... Some people have been toying with the idea we're going to get inflation this year. I don't see where its coming from. This doesn't help that argument. If you had the idea the Fed might get more hawkish, it's not in this number."

After revisions, monthly job gains averaged just 184,000 from October through December. A strike at General Motors reduced October's payroll growth, which was 154,000, after revisions. November surged to 256,000, post revisions, as workers returned.

But Ward McCarthy, chief financial economist at Jefferies, said he was concerned that manufacturing employment lost 12,000 workers and had not stabilized in the December report.

Some economists had expected a decline, due to a slowdown on manufacturing at Boeing, which was expected to reduce its workforce as it deals with its 737 Max crisis. McCarthy said another negative was the surprise dip in professional and business services job growth, which was just 10,000, well below trend but possibly a one-time issue.

"It's nothing to be overly concerned about," said McCarthy. "The data is mixed. Overall, it provides a positive picture of the economy and the labor market, and we will continue to see the labor market generate jobs. It's probably not going to generate jobs as fast primarily because of the pool of available labor."

Economists had been expecting a slowing in job growth simply because employers can't find workers to fill many jobs.

There was also the expectation that wage growth would become a bigger factor, after nonsupervisory worker pay showed signs of picking up recently. "Those gains were revised away," said McCarthy.

Economists said higher wages could still emerge in the next few months, but for now wage growth is more sluggish than expected, and that could be seen as positive in some ways.

"When you take the flip side, there are still wage gains," Orton said. "But where it is most important is on the corporate side. We're still in an environment of benign wage inflation. That's generally supportive of keeping costs in check. That should be supportive of corporate earnings."