|
The U.S. added 216,000 jobs in December to finish the year with a gain of 2.69 million jobs. While this is 43% less than the total number of jobs added in 2022, the increase is better than each of the two years prior to the pandemic. Most of the jobs added were in state and local government and the leisure and hospitality sector. Service producing jobs continue to be the forefront of the economy, adding 142,000. Goods producing companies added 22,000 jobs, with the bulk of those in construction. The unemployment rate remained at 3.7% for the second month in a row and solidly under 4% for almost two years. The one piece of data in the monthly report that wasn’t as positive was a decline in the Labor Participation Rate from 62.8% to 62.5%, the biggest drop in three years. The decline was concentrated among younger and older people. Wage growth continues to be healthy, ending the year at 4.1%.
Overall, the December labor report portrays a labor market that is strong, but other data gives hints of some weakening. December’s report included the third downward revision in a row, suggesting the Bureau of Labor Statistics report should be taken with a grain of salt. According to the JOLTS report, the number of job openings in November fell to the lowest level since 2021. The quits rate, a measure of the number of people who voluntarily leave a job and a sign of optimism, declined to the lowest level in over three years.
The report falls in line with the Federal Reserve’s plan of being cautious. It is too early to claim a win, but the economy is getting closer to the goal line. Odds are growing for a rate cut not to happen until at least May.
Key Indicators this Week
FOMC Minutes – The market will hear what it wants to hear, at least when it comes to lower interest rates. Bond investors continue to hope against hope that the Federal Reserve will conduct up to six rate cuts this year, even though the minutes from the December FOMC meeting actually suggested the opposite. The minutes, released this week, revealed that Fed policymakers remain in the camp that, while rates may be at or near their peak, they could stay restrictive for longer than anticipated. There was no discussion of any magnitude during the two-day meeting about when rate cuts would begin, only a note that cuts could emerge before the year is out. The committee agrees there is a downside risk to staying restrictive for too long, but officials want to see more evidence that inflation is moving closer to the Fed’s 2% target. Despite the minutes backing up comments from FOMC members against rate cuts, the market remains happy the Fed is simply acknowledging a lower range might be appropriate.
Manufacturing and Services – The ISM indices for both manufacturing and services continue to be weak. In December, the manufacturing index remained in contraction territory for the 14th month. This is the longest stretch of weak activity since 2000-2001 when the dot-com bubble burst and sparked a recession. Employment improved while new orders fell with both sub-components remaining in contraction. On the bright side, 15 of the 18 industries surveyed are optimistic about 2024 and project revenues to increase. The service index, while still in expansion territory at 50.6, had the biggest monthly drop since March. Employment and new orders fell, suggesting a less rosy outlook than the manufacturing sector.
Note: Behind the Numbers will not be published next week. The report will resume on January 19.
Sarina Freedland – Senior Investment Officer
Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. This is for informational purposed only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.
|