Job growth remained strong in December as employers added 223,000 salaried positions, while the unemployment rate fell to a 50-year low. However, wage growth slowed much more than expected and workers logged fewer hours for a second straight month. The data should allow the Fed to further slow its pace of raising interest rates. After the jobs report, the Dow Jones Industrial Average rallied.
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The weaker components of the jobs report were supported by a surprisingly weak reading of the Institute of Supply Management’s services index, which fell to a restrictive reading below 50 for the first time since May 2020. .
After the ISM reading at 10 a.m. ET, odds jumped to 76% that the Fed will moderate its rate hike to just 25 basis points on February 2. 1.
Hits And Misses Job Report
Job gains topped Wall Street’s 200,000 forecast, with the private sector adding 220,000 jobs and government 3,000.
The average hourly wage increased by 0.3% on the month vs. Expectations of 0.4%, while there were downward revisions for October and November. Annual wage growth of 4.6% missed the forecast of 5%.
Job gains for October and November were revised down by a combined total of 28,000.
The unemployment rate, which should remain at 3.7%, fell to 3.5%.
Key employment and wage figures come from the Department of Labor’s monthly survey of employers. The separate household survey details labor force participation, employment status and unemployment rate.
The household survey showed that the ranks of employed people rose by 717,000. The number of unemployed fell by 278,000, while 439,000 people joined the labor force, meaning they are working or seeking work.
The labor market participation rate among the population aged 16 and over fell from 62.2% to 62.3%.
Dow Jones, Treasury Yield Reaction
The Dow Jones jumped 1.5% on Friday morning Action on the stock exchange. The S&P 500 jumped 1.4%, while the Nasdaq composite rose 1.2%.
The 10-year Treasury yield fell 12 basis points to 3.6%.
On Thursday, the Dow, S&P 500 and Nasdaq composite all fell more than 1% and closed near the bottom of their trading ranges for the past two months.
The Dow Jones has rebounded 14.6% since its September price. The closing low of the 30th, but remains 10.5% below its all-time closing high. The S&P 500 sits 20.6% below its record closing high and 6.5% above its 52-week low on Oct. 1. 12. The Nasdaq is up just 0.9% from its 52-week low on Dec. 21. 28, after falling 35.8% from its closing high.
After the recent selling pressure, the Dow Jones and the broader market may have some leeway to rally. However, the latest Fed meeting minutes included an implied warning to investors not to get carried away. “An unwarranted easing of financial conditions” could run counter to Fed policy and “complicate” efforts to restore price stability, according to the minutes.
Be sure to read the IBDs The big picture every day to stay in tune with the direction of the market and what it means for your trading decisions.
Job report details
Despite strong hiring, total hours worked across the economy fell 0.1% in December after falling 0.2% in November. This reflects a shorter average workweek, which fell to 34.3 hours last month, from 34.4 hours in November and 34.5 in October.
Temporary jobs fell by 35,000, the third straight monthly decline, in what economists see as a potential leading indicator of broader labor market weakness.
Construction jobs increased by 28,000 and manufacturing jobs by 8,000. Retailers added 9,000 jobs. Employment in the leisure and hospitality sector increased by 67,000. Jobs in health care and social assistance increased by 74,000.
ISM Services
The ISM services index fell to 49.6 from 56.5 well below views of 55. Readings below 50 signal contraction.
The ISM new orders sub-index plunged 10.8 points to 45.2. The employment index slipped 1.7 points to 49.8, due to a combination of economic uncertainty and an inability to fill vacancies. The Supplier Delivery Index also weighed on the overall ISM reading, but this reflects increased capacity and improved logistics after a period of supply chain difficulties.
The ISM index of current activity of service companies remained positive, but fell 10 points to 54.7.
Does this change the outlook for the Fed?
Financial markets took inspiration from the surprisingly weak wage data. The initial increase of 0.6% in the average hourly wage announced in November has been lowered to 0.4%. Data from the Labor Department now shows wage growth of less than 5% over the past three months. The latest reading of 4.6% was the lowest since August 2021. Over the past three months, wage growth has been running at an annualized rate of 4.1%, noted UBS economist Jonathan Pingle.
Wage growth is key to the Fed’s outlook. Federal Reserve Chairman Jerome Powell said wage growth of 3.5% would be in line with the Fed’s 2% inflation target.
While there may be more twists to come, the latest salary news has been met with a sigh of relief. But the drop in the jobless rate and solid job growth, even with fewer hours worked, mean the Fed’s tightening could continue into the spring. Given that many employers typically give salary increases to current employees at the start of the year, it may be premature to assume that salary growth is on a downward trajectory.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
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