U.S. Economics – Labor Market

Labor Market

The Signals:

• Nonfarm Payrolls (Chart 1)
  • Total nonfarm payrolls grew by 256,000 m/m, up from the 212,000 increase in the prior month, with private industries accounting for 223,000 of that total for December.
  • The m/m change was led by Education & Health Services at 80,000, Trade, Transportation & Utilities at 49,000, and Leisure & Hospitality at 43,000.
  • Durable Goods Manufacturing and Mining were negative for the month at -16,000 and -3,000, respectively.
    • Payroll data is subject to seasonal adjustments and statistical assumptions and are considered preliminary for the two most recent months of data but can also be revised again on an annual basis in March.
    • To frame up the possible monthly revisions, with 90-percent confidence each release falls within plus or minus 130,000 of the initial print.
    • Therefore, we must interpret this data within the context of a broader set of economic and market data for a more complete view of the economy’s trajectory.

• Initial Jobless Claims (Chart 2)
  • On a seasonally-adjusted basis, initial claims declined to 201,000 for the first week of January, tracking below 2019 levels since early November.
    • This weekly series tracks individuals filing for unemployment insurance and therefore does not capture all layoffs as they occur, but it does offer a high-frequency gauge on part of the unemployment picture.
    • Looking ahead, the comparison set for corporate earnings eases in the first quarter, increasing the probability of an acceleration in profitability which may further reduce the appetite for laying off employees.

• Average Hourly Earnings (Chart 3)
  • Year-over-year growth in average hourly earnings slowed to 3.9% but remains well above the 2.7% average from 2015 to 2019.
    • Ultimately, we are focused on the labor market for what it tells us about the consumers’ future capacity to spend.
    • Average payroll growth and above average nominal earnings growth can fuel nominal spending and contribute to positive economic environments.

• U.S. Treasury Yields (Chart 4)
  • The 10-Year U.S. Treasury yield was at 4.78% at the close on Tuesday, up by 115 basis points from its September low and matching the sequential uptick in the Consumer Price Index.
    • Despite FOMC rate cuts, the yield on the 10-Year Treasury has pushed higher, likely reflecting positive future growth and inflation expectations.
    • The U.S. economy has been isolated from some of the weakness we have seen in other areas of the world, like the Euro Area, China, and Canada, whose central banks have cut more aggressively amid weaker economic conditions.
    • In our view, rising long-end yields and a reduction in rate cut expectations provides further evidence of an improving economic environment in the U.S.

The Takeaway:

• Inflation has progressed in the direction we expected through year-end and that trend is likely to continue into the first quarter given the trajectory of market-based signals we monitor.
• Positive growth data and above target inflation could push expectations for the amount of rate cuts lower in 2025 and the pace of potential cuts further out into the future.

Visuals:

(Chart 1)

(Chart 2)

(Chart 3)

(Chart 4)

Source: Macrobond

Market Trends:

Source: Macrobond

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.