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01 08 2016 | by Victor Xing | Economics

Dec 2015 Payrolls: strong hiring vs. soft wage growth

Summary of the Dec 2015 Payrolls

The Dec 2015 non-farm payrolls came in at a encouraging 292,000 vs. 200,000 expectations.  A 50,000 upward revision over the past two months was also a positive.  Highlights:
  • Good: strong headline job gains at 292,000 vs. 200,000 consensus and 252,000 prior (revised up from 211,000)
  • Good: headline labor force participation rate rose a touch to 62.6 vs. 62.5 prior, prime age (25 to 54 years) participation rate also improved at 80.9 vs. 80.8 prior
  • Good: part-time workers for economic reasons edged lower
  • Good: U-3 unemployment rate unchanged at 5.0%, U-6 unemployment rate unchanged at 9.9% (unchanged unemployment rate amid higher participation rate is positive)
  • Not so good: average hourly earnings (wage inflation) at 2.5% YoY vs. 2.7% consensus and 2.3% prior
  • Not so good: long-term unemployed as a percentage of total unemployed rose to 26.3% vs. 25.7% prior
Market reactions on the session have been largely driven by equities, and the soft wage growth somewhat offset the otherwise highly encouraging employment report.  As equity futures erase overnight gains, investors responded by raising expectations of more dovish Federal Reserve policies, and the Treasury curve continued to re-steepen in the 5s30s sector despite a brief flattening follow the data release.

Breaking down the job gains and job losses, with a few surprises

Top job gains went to administrative and support services, and the old top gainer food services and drinking places trailed at the second place.  Moreover, the high-wage professional, scientific, and technical services (which also includes lower pay temporary workers) sector fell to the 9th place
Dec 2015 Payrolls: top job gainers
It is also worth mentioning the surprising gains in the motion picture and sound recording industries – WSJ attributed this to the ‘Star Wars’ effect:
Dec 2015 Payrolls: "Star Wars" effect
Job losses also showed some surprising readings, namely the decline in clothing and clothing accessories stores.  Interestingly, the December 2014 and December 2012 employment reports also indicated similar declines, therefore this doesn’t seem to be the beginning of a new trend (more analysis is needed, but online shopping is an usual suspect in the decline in clothing store employment)
Dec 2015 Payrolls: top job losses
The job losses in mining and manufacturing largely came as expected, given the meltdown in energy and manufacturing sector

Individual components

Dec 2015 Payrolls: unemployment rate and involuntary part-time workers

Both the U-3 and broader U-6 unemployment rates remain unchanged at 5.0% and 9.9%, respectively, and part-time workers for economic reasons (involuntary part-time workers) dipped slightly following prior month’s rise

Dec 2015 Payrolls: average hourly earnings

Average hourly earnings came in at 2.52% YoY (vs. 2.7% market expectations) and -0.04% MoM (vs. 0.0% consensus)

Dec 2015 Payrolls: participation rate

Headline and prime age participation rate rose to 62.6% and 80.9%, respectively

Dec 2015 Payrolls: long-term unemployed
Long-term unemployed as a percentage of total unemployed ticked up slightly to 26.3% vs. 25.7% prior

Next article01 06 2016 | by Victor Xing | Central Banks

December FOMC Minutes: policy reaction function in focus