December Job Growth Below Consensus, But...

The December Employment Report shows job growth slowing toward trend in the last month of the year.  But the underlying labor market remains strong.  Some of the slowing could reflect volatility after the November jump.  And, there may be some special factor behind weakness in manufacturing jobs.  There is evidence that some sectors, like construction, are strengthening.  The jobs slowdown is not enough to derail the stock market rally, but it should keep Treasury yields from rising.

While the +145k Payroll gain is smaller than consensus, it still above the near-110k pace consistent with a steady Unemployment Rate.  While the headline Unemployment Rate was steady at 3.5%, it actually slipped to 3.50% from 3.54% in November. 

The Payroll composition shows mostly smaller gains than in November, which is not surprising given the latter's out-sized 256k Payroll jump (even taking account of the 44k returning GM strikers).  Most interestingly, Construction Jobs jumped 20k m/m in December, but not because of construction of new residential homes.  The gain was mostly in nonresidential, which suggests this component of the sector may have ended its recent downtrend -- important in the big picture question whether business investment will speed up.  In contrast, the 12k drop in Manufacturing Jobs suggests business investment is still weak.  The jobs drop was accounted for by declines in Primary Metals, Fabricated Metals and Machinery.  Some of these declines, however, may have been in anticipation of the stoppage of the Boeing 737 Max production beginning in January.

The Boeing shutdown should weigh noticeably on Q120 Real GDP Growth.  But, Total Hours Worked still look decent going into the quarter.  THW in December are 0.5% (annualized) above the Q419 average.  With modest gains in the next 3 months, THW in Q120 could easily match the 1.1% (q/q, saar) increase in Q419.

Meanwhile, wage inflation so far remains in check.  While calendar considerations could be behind the below-consensus 0.1% m/m increase in December Average Hourly Earnings, it is still a noteworthy sign the tighter labor market is not putting heavy pressure on labor costs.  The y/y fell to 2.9% from 3.1% in November.  It is well below the 3.3% in 2018.  The latter reflected in part a wave of minimum wage hikes.  With another wave happening in 2020, wage inflation could pick up in coming months.