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Market Update

Job Stats on Point Except For the Paychecks

January 9, 2015

Thursday’s monster rally may prove difficult to match, it was just that big. In fact, it was that move that pushed stocks into positive on the year after a bumpy start. But another strong U.S. hiring tally is cushioning early trading Friday. It’s a headline-strong report but one with enough wrinkles (wages primarily) to prompt a Federal Reserve dove to immediately repeat his urgency for a go-slow interest-rate policy response.

What a Hiring Streak. The U.S. added 252,000 jobs in December, a stronger number than most Wall Street economists expected. The economy has created at least 200,000 jobs each month for 11 straight months. The economy created 2.95 million new jobs in 2014, marking the biggest yearly hiring spree since a 3.2 million increase in 1999. December’s unemployment rate fell to 5.6% from 5.8%. Hiring was in the typically higher-paying categories that can translate to a broader economic boost—business services, construction, and healthcare.

FIGURE 1: The economy has created at least 200,000 jobs each month for 11 straight months and December’s year-over-year job growth was the best since 1999. For illustrative purposes only. Past performance does not guarantee future results.

But What About Wages? Not every report detail was so stellar. Wage growth, which has risen much more slowly than usual since the U.S. exited recession in mid-2009, in fact eased last month. Now, the stock market may be discounting that figure because one month does not a trend make. But, wage gains have averaged 2% or slightly less per year since 2010, just two-thirds as fast as they normally grow in a recovery period. The amount of time people worked each week, meanwhile, was unchanged at 34.6 hours in December to remain at post-recession high. And yes, this is getting a little in the data weeds, but here’s one more: the labor-force participation rate dropped 0.2 percentage points in December to 62.7%, matching a post-recession low and a level last seen in 1978. Clearly, not everyone who wants a job and can work is finding one.

Doves vs Hawks. Stocks logged strong gains on Thursday, including the best day for the Dow Jones Industrial Average (DJIA) in three weeks. Dovish comments from Chicago Federal Reserve president Charles Evans late Wednesday goosed the market’s move as this known policy dove said he thought the Fed could lay off the rate-hike trigger until 2016. Guess what? Evans had a breakfast appearance today that timed perfectly to the jobs report. He repeated his belief that 2016 looks better for a rate hike than 2015, particularly because of lagging wage growth. A hawkish Fed member takes the mike later today. Richmond Fed head Jeffrey Lacker speaks on the economic outlook at a 1:20 p.m. Eastern. Let’s see if he has any comments on inflation risks or this latest batch of hiring numbers.

Good trading,

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