The headline nonfarm payroll number was a big miss at 199,000 (vs. 450,000 expected). Seasonal adjustment problems may be partly to blame for the payrolls miss, but we expect the December release will also see upward revisions, as alternative data sources report much stronger job growth last month.
Despite the payrolls miss, the rest of the report points to a hot labor market. Most notably, the unemployment rate dropped by 30 basis points to 3.9 percent, which is just 40 basis points above where the Federal Reserve (Fed) expects unemployment to be in the fourth quarter of 2022. We could reach that level as early as this spring with the possibility of reaching 3 percent by December. The tight labor market will increase wage pressure, making a March increase in the overnight rate more likely.
The drop in the unemployment rate was due to a gain of 651,000 people working in the household survey, while the labor force participation rate was unchanged. The unchanged participation rate will add weight to Fed Chair Powell’s comments that a good portion of the participation shortfall is voluntary at this point, meaning that the labor market may already be at or beyond full employment.
In another sign of how tight the labor market is, average hourly earnings rose 0.6 percent month over month, 20 basis points higher than expected, and November wage growth was also revised up. This wage data corroborate other data we’re seeing on worker bargaining power, with both the quits rate and small business wage plans at record highs. Powell has repeatedly cited strong wage growth as an upside risk to inflation.
One basis point = 0.01 percent.
Investing involves risk, including the possible loss of principal.
This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.
This material contains opinions of the author, but not necessarily those of Guggenheim Partners or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. Past performance is not indicative of future results.
Guggenheim Investments represents the following affiliated investment management businesses: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Fund Management (Europe) Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management.
© 2022 Guggenheim Partners, LLC. All rights reserved.