Employment Situation: Strong But Not a Trend Changer

January 4, 2019
Bottom Line: Payrolls rose sharply more than expected in December as the unemployment rate rose with an increase in labor force participation and an acceleration in average hourly earnings growth. The surprise payroll growth was driven by seasonally volatile industries - construction, teachers and hospitality. The overall report was strong but not a trend-changer yet - still, the 3-month average for payrolls growth is now 254k, sharply above the 12-month pace of 220k, and that bears watching as volatility in those sectors plays out over the course of the first few months of '19. Average hourly earnings rose sharply, but even with December's gains the average of the last three months is still below that of the last six months and only modestly above that of the last 12 months. Finally, revisions to the household survey showed a nice increase in the labor force, boding well for overall employment to population ratios longer-term and temporarily increasing the unemployment rate. Overall this was a strong monthly jobs report in a labor market that has been strong for years, but given seasonal volatility there is not enough here yet to suggest a major acceleration in that strong trend. Payroll Employment rose by 312k in December, compared with market expectations for an increase of 184k. The prior 2 months were revised, higher in November by 21k and higher in October by 37k. Government jobs ROSE by 11k. Consequently, private sector jobs ROSE by 301k. Private education jobs rose by 24k. State and Local education jobs rose by 2k. Overall employment is now 1.8% ABOVE its year ago level, Over the past 12 months, 2,638k jobs have been created. In December, the job gains were in Trade, Transportation & Utilities (+10k with 24k of those in Retail Trade), Professional & Business Services (+43k with the addition of 10.3k in Temp Help Services), Education & Health Services (+58k), Leisure & Hospitality (+55k), Construction (+38k), Manufacturing (+32k), Government (+11k), and Other Services (+8k). Jobs were shed in Information (-1k). The Unemployment Rate ROSE by 0.2 percentage points in December to 3.9%, compared with market expectations for a no change to 3.7%. Household employment rose by 142k while the labor force increased by 419k, resulting in an increase in the number of unemployed of 276k. The Labor Force Participation Rate ROSE by 0.2 percentage points to 63.1%. The Employment-Population Ratio was UNCHANGED at 60.6%. The Index of Aggregate Hours ROSE by 0.5%, combining the solid gain in private payroll employment and the longer workweek. Hourly Earnings ROSE by 0.4% in December, above market expectations of 0.3%. Hourly earnings are now 3.2% ABOVE their year ago level. Weekly Earnings also ROSE by 0.7%, the result of the change in hourly earnings and a longer workweek. Weekly earnings are now 3.2% ABOVE their year ago level. The Average Workweek ROSE by 0.1 to 34.5 hours, in line the market consensus at 34.5 hours.