Consensus on US Job Growth Met, but Big Earnings Disappointment

The US grew 252k net jobs in December, and the October-November series was revised up by 50k. The participation rate ticked down to match the cyclical low seen last September of 62.7% (from an upwardly revised 62.9% in November).  This was behind the decline in the unemployment rate to 5.6%.  

Hourly earnings were an important disappointment.  Not only did they fell by 0.2% in December, but the 0.4% rise in November that was seen as a preliminary sign that the improvement in the labor market was finally seeing upward pressure on wages was halved to 0.2%.  The year-over-year rate slumped to 1.7%, the lowest since October 2012.   This will become problematic for the Fed if it persists.  As the FOMC minutes suggested, if the labor market continues to improve, which includes broader measures than simply the unemployment rate like earnings, the Fed could still raise rates even if there is no further progress toward the inflation target.  

The manufacturing sector added 17k jobs, and construction added 48k.  This points to a healthy increase in industrial output in December.  Business services, leisure, and health care continue to post strong jobs growth.   Recent data suggests the US economy may have grown around 3% in Q4.  

Canada reported disappointing housing figures before its jobs data.  The details of Canada's jobs report were better than the 4.3k decline in the headline number suggest.   Full-time jobs grew by 53.5k.  This was obscured in the headline by the 51.7k decline in part-time jobs.    That said, we have noticed that the Canadian dollar appears to respond more to the headline than the details.  

The US dollar traded higher across the board in response to the employment figures that we would read a bit more cautiously.  The move in the December Eurodollar futures to imply the lowest yield since mid-December is in line with our assessment than the knee-jerk gains in the dollar.