The employment situation in the USA remains strong and the Federal Reserve will use these numbers as a data point in future rate hike discussions. Here are some key points from today's report.
Key Data Points:
- The number of long-term unemployed declined by 146,000 to 1.1 million in December. Long-term unemployed accounted for 18.5% of all unemployed persons.
- The employment-population ratio increased by .2 percentage points over the month to 60.1%. Labor force participation rate was little changed at 62.3%. Both of these measures are 1 percentage point below their values in February 2020, prior to the covid-19 pandemic.
- The number of persons not in the labor force who currently want a job fell by 352,000 to 5.2 million in December. These individuals are not counted as unemployed because they were not actively looking for work during the 4 weeks preceding the survey.
- The number marginally attached to labor force declined by 231,000 to 1.3 million in December. These individuals wanted and were available for work but have not actively looking for work in the 4 weeks, however, have actively looked for work in the preceeding 12 months.
- Notable job gains occured in leaisure and hospitality, health care, construction, and social services. Payroll employment rose by 4.5 million in 2022. The average monthly gain in 2022 was 375,000 jobs per month, less than the 562,000 in 2021. Although leisure and hospitality added roughly 79,000 jobs per month, it is substantially lower than its pre-pandemic range by 5.5%.
- Health care employment continues to rise and is considerably above its 2021 average of 9,000 monthly gain. Health care is averaging 49,000 per month in 2022.
- Job losses occured in couriers and messengers (-4,000) and warehousing and storage (-3,000). Job growth in these areas was roughly half of what it was in 2021.
- Average hourly earnings rose by 9 cents to $32.82 for all employees on private nonfarm payrolls. This constitiutes and increase of 4.6% over past 12 months.
- Average work week continues to decline by .1 hour to 34.3 in December. Overtime declined by .2 hour to 2.9 hours.
Revisions:
Nonfarm payroll employment for October was revised down by 21,000 from 284,000 to 263,000. November was also revised down by 7,000 from 263,000 to 256,000. Employment gains in October and November show a total loss of an additional 28,000 jos, lower than previously reported.
Conclusion:
We believe these numbers are continually showing strength and the Federal Reserve will remain steadfast on its interest rate hiking policy. Currently, the Federal Reserve dot plot shows rates peaking out around 5.1-5.4 percent, however, if data continues to remain strong you may see even higher rate hikes into the future and rates to remain higher for longer. Equity markets will not like the sound of that and will see any positive economic data as a precurosr to higher rates and lower valuations along side a slowing economy. Remember, the Federal Reserve has a dual mandate, maximum employment and price stability. As long as the labor market continues to have 1.7 jobs per person seeking employment, the Federal Reserve maximum employment mandate is under control. Inflation is a significant headwind, and the Fed can allow for unemployment to increase as long as it brings down prices. We are expecting another interest rate increase at the February meeting and currently feel markets are not correctly factoring in higher rates, although rate markets are staring to tcome to the conclusion that 5% Fed Funds is likely.
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