Job’s Report Not So Solid


Friday’s jobs report, the first of 2017, came in weaker than expected with 156k jobs created in December versus expectations for 176k. This report tends to be volatile month-to-month, so we like to look at the twelve month moving average to get a better idea of the longer-term trends. From that lens we can see that new job creation peaked back in February of 2015 and has been trending downward ever since. Today the twelve month moving average is back to February 2014 levels – not exactly painting the picture of an accelerating economy.

On the other hand average hourly earnings increased by 2.9% on a year-over-year basis as the labor force participation rate, which is still at early 1980s levels, rose slightly from 62.6% to 62.7%. The uptick in wages could be partially attributable to the calendar because the survey is typically conducted during the week of the 12th day of the month which was a Saturday in November but a Monday in December, so that those who get paid on a bi-monthly basis would be counted in December. Taking a look at the longer-term average, average hourly earnings on a 3-month and 12-month moving average basis have been solidly trending upwards along with the monthly number.

Bottom Line: This report is likely to make another rate hike by the Fed more likely rather than less likely, although we still see major structural problems with the labor market given the multi-decade low level of employment in the working age cohort coupled with the ever widening gap between Job Openings and Hirings that indicate a mismatch in the nation between the skills companies want and those available in the population.

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