The U.S. Bureau of Labor Statistics reported a total of 145,000 new jobs were created in December. This was about 10% below economist forecasts of 158,000. It was also below the 2019 average monthly gain of 167,000.
Despite the jobs report number being considered “just OK” by 2019 standards, the markets were buoyed by the report. The Dow Jones Industrial Average, as expected, cracked the 29,000 level in early morning trading before falling back. The NASDAQ and S&P 500 were also reporting, and holding, gains.
While the number was lower than expected, it still marked 11 straight months that the economy was creating jobs. Economists were also quick to point out that it was unrealistic to expect a blowout jobs report like investors received in November. That number was aided by the recall of thousands of workers at General Motors (NYSE:GM) who were on strike in October.
The Jobs Report Conflicted With the ADP Report
The December jobs report was in contrast to the Automatic Data Processing (ADP) report that came out on Thursday. That report showed significantly higher momentum with business payrolls posting 202,000 jobs, the most in eight months. And that was on top of an upwardly revised November figure. The revised 124,000 payroll gain was nearly double the initial forecast.
It’s important to note that the ADP report uses a different methodology than the U.S. Bureau of Labor Statistics. Therefore, the results of each report do not directly correlate to each other.
The unemployment rate remained unchanged at 3.5% as did the labor participation rate which is just over 63%. Wage growth is exceeding inflation but remains not as robust as some analysts would like to see. Average hourly wage earnings rose 2.9% on a year-over-year basis. And in a tight labor market, that has some economists concerned.
“It’s a reversal of a recent trend towards escalating pay growth as the labor market has tightened,” said Andrew Chamberlain, chief economist at Glassdoor. “Pay growth remains the one aspect of the job market that still hasn’t fully recovered from the Great Recession.”
3 Takeaways for Investors
- The Goldilocks economy is still in place – If you’re bullish on the economy, the continuing growth of jobs is enough to support your position. If you’re bearish on the economy, there is data (such as wage growth) that can support your position. But overall, the report continues to build on the theme of an economy that is growing neither too fast nor too slow. And when you contrast it with the global economy, the U.S. economy continues to stand out.
- There are winners and losers in every economy – This is not an economy where a rising tide is lifting all businesses. You have to look no further than last quarter’s earnings reports to see that some companies such as Macy’s (NYSE:M) are struggling. In fact, even as e-commerce continues to grow, some retail stocks are struggling. Macy’s recently announced more store closings. On the other hand, Walmart (NYSE:WMT) is finding new ways to compete with Amazon (NASDAQ:AMZN).
The manufacturing sector also continues to be a drag on the economy, shedding 12,000 jobs in December. This is due, in large part, to the ongoing U.S.-China trade war. One of the things economists will be watching for going forward will be if job losses slow or even become gains after the “Phase One” deal is signed (presumably in mid-January).
- The jobs report brings clarity to the Fed decision-making process – The Federal Reserve has said it has no intentions of raising or lowering interest rates anytime soon. Although macroeconomic events, like the rising tensions between the United States and Iran may be a wildcard, the general consensus is that this jobs report will provide Fed policymakers with the data they need to hold the line on interest rates. Since the markets like clarity, this is good news for investors.
“It would take job growth below 100,000 to rattle the Fed into considering more rate cuts, and, even then, the stall would need to be sustained for about three months,” said Josh Wright, a former Federal Reserve staffer. Wright, who is now the chief economist at the recruiting-software firm ICIMS went on to say, “Rate hikes are still out of the question, especially with tensions in the Middle East causing oil prices to jump.”
The Jobs Report is Only One Data Point
Ultimately the jobs report is only one out of many economic indicators that investors should monitor. And, in the case of the current economy, it may not be the most important one. This is a historic bull market that shows no signs of stopping. Unemployment is at 50-year low. Household income is at a 20-year high. Corporate earnings, in general, continue to provide support for the growth in equity markets. Add to that low inflation and interest rates and there would seem to be a lot of fuel for investor optimism to start 2020.
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