December Payrolls: a Blowout that Will Blow Over

Josh Wright
January 8, 2019
Market Trends
  • Overall:
    • Devastating blow to the “rate cuts are imminent” narrative. The Fed cannot afford to back off its search for a neutral setting when job growth is far above trend and wage growth is accelerating. Of course, where neutral rates lie remains a vexed question.
    • Mixed signals across economic data mean Fed Chairman Powell needs to focus on explaining the Fed’s reaction function and financial market transmission mechanism.
    • Growth in the labor force suggests there may still be room to bring in workers from the sidelines, but this is just one report and it’s hard to see discouraged workers continuing to get re-encouraged unless financial markets and media headlines improve. Also, with the uncertainty around “full employment” and Powell’s skepticism about unobserved variables, the Fed focuses more on payrolls and wages than the demographic and other supply-side issues.
    • No strong reason to believe this is much more than an unusually large upside anomaly. It does suggest the labor market isn’t slowing down though
  • Bullish details:
    • The concentration of unemployment gains among job leavers
    • Rise in the labor force
    • Decline in part-time workers
    • Robust growth in manufacturing (despite tariffs), mining (despite lower oil prices), and the bellwether temporary services. Strong retail is consistent with early reports of holiday sales (and iCIMS hiring data).
  • On data
    • Employment data mix concurrent and lagging indicators, not just lagging ones – counter to what some have been saying this week.
    • We clearly need more data to get a better sense of how things are shaking out across the U.S. economy. Too bad the partial government shutdown will reduce our data flow.
  • Key questions going forward:
    • Can the strength of the U.S. consumer outweigh headwinds from abroad, chilling effects from market volatility and political uncertainty, and the cumulative effects of higher rates so far (incl. slower housing)?
    • How much of the economic slowing so far is more than what the Fed expected and attributable to political uncertainty, trade tensions, and financial market volatility?

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About the Author

As iCIMS’ former chief economist, Josh Wright led a team of data scientists in analyzing emerging trends in the U.S. labor market. With publications ranging from academic journals to national media, Wright previously served as a U.S. economist with Bloomberg L.P., and was a staff researcher at the Federal Reserve.