US Markets
Friday, January 5th, 2024 2:55 pm EDT
Key Points
Strong Labor Market Performance:
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- The U.S. labor market concluded 2023 on a positive note, surpassing expectations. In December, employers added 216,000 positions, with the unemployment rate holding steady at 3.7%. Payroll growth showed a significant increase from the downwardly revised figures of November (173,000) and October (105,000), albeit indicating a slightly less robust growth picture for the fourth quarter.
Comprehensive Employment Metrics and Economic Indicators:
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- A more encompassing unemployment measure, accounting for discouraged workers and part-time employees, rose to 7.1%. The “real” unemployment rate increased as the household survey indicated a decline in job holders by 683,000. The labor force participation rate declined to 62.5%, the lowest since February, with a monthly decrease of 0.3 percentage points and 676,000 individuals. Despite the positive overall employment figures, the report, along with revisions, brought 2023 job gains to 2.7 million, reflecting a monthly average of 225,000, down from 2022 figures.
Market Reaction, Inflationary Pressures, and Monetary Policy:
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- Markets reacted negatively to the data, with stock market futures falling and Treasury yields rising. The hiring boost in December was attributed to gains in government jobs (52,000), health care-related fields (38,000), leisure and hospitality (40,000), social assistance (21,000), and construction (17,000). However, transportation and warehousing experienced a loss of 23,000 positions. The report highlighted ongoing inflationary pressures in the labor market, with average hourly earnings rising 0.4% on the month and 4.1% from a year ago, exceeding estimates. The average workweek slightly decreased to 34.3 hours. Fed funds futures markets reacted by lowering the odds of a March rate cut from the Federal Reserve to about 56%, according to the CME Group. The report challenged the market narrative of an imminent easing of monetary policy, with the belief that the Fed can start cutting fueled by the expectation that inflation will continue to recede after peaking in mid-2022.
The U.S. labor market closed out 2023 on a robust note, exceeding expectations as the Labor Department reported that employers added 216,000 positions in December, outpacing the anticipated 170,000. The unemployment rate remained steady at 3.7%, showcasing a strong hiring pace. However, the report also revealed downward revisions for November (173,000 from 173,000) and October (105,000 from 150,000), painting a slightly less vigorous growth picture for the fourth quarter. The broader unemployment measure, accounting for discouraged workers and part-time employees, increased to 7.1%. The real unemployment rate rose as the household survey reflected a decline in job holders by 683,000. The labor force participation rate dipped to 62.5%, its lowest since February, marking a monthly decrease of 0.3 percentage points and 676,000 individuals. Despite the positive overall employment figures, markets reacted negatively, with stock market futures falling and Treasury yields rising.
The hiring surge in December was attributed to gains in government jobs (52,000), healthcare-related fields (38,000), leisure and hospitality (40,000), social assistance (21,000), and construction (17,000). However, transportation and warehousing saw a loss of 23,000 positions. Notably, inflationary pressures persisted in the labor market, as average hourly earnings rose 0.4% for the month and 4.1% from a year ago, surpassing estimates. The average workweek slightly decreased to 34.3 hours. The data influenced Fed funds futures markets, reducing the odds of a March rate cut to about 56%, according to the CME Group. Analysts noted the report’s implications for the Fed’s inflation strategy, with expectations of policy rate cuts pushed further into the second half of the year.
The U.S. economy’s resilience, defying expectations of a slowdown despite the Federal Reserve’s aggressive inflation-fighting campaign, was underscored by the December data. The Fed has implemented 11 interest rate hikes totaling 5.25 percentage points since March 2022, marking the most assertive monetary policy tightening in four decades. While the Fed’s projections indicate three quarter-point interest rate cuts this year, markets anticipate a more aggressive stance, with futures traders pricing in up to six cuts. The prevailing belief that the Fed can initiate cuts is rooted in the expectation of receding inflation, although Friday’s report challenges the narrative of an imminent easing of monetary policy. Economic growth has remained solid, with GDP projected to increase at a 2.5% annualized pace in the fourth quarter, according to the Atlanta Fed’s GDPNow tracker. Consumer resilience is also evident, with holiday spending expected to reach a record $222.1 billion, rising 5% year-over-year, according to Adobe Analytics projections.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/01/05/jobs-report-december-2023-payrolls-increased-by-216000-in-december.html
