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199K New Jobs Disappoint; 3.9% Unemployment at Pre-Covid Level

The biggest disappointment of the December jobs report comes from its most visible aspect: the weak headline number.

This story originally appeared on Zacks

Friday, January 7, 2022

Another head-scratcher of an Employment Situation report for December hits the tape this morning. The U.S. Bureau of Labor Statistics (BLS) announced 199K new jobs added to the economy last month, well below the 400-425K expected, and way way under the 807K private-sector gains in Wednesday’s ADP ADP report. The Unemployment Rate, however, shot down to 3.9% — the first time we’ve seen a three-handle since February 2020.

This demonstrates that U.S. unemployment is back down to pre-pandemic levels. We’ve already seen the same thing in weekly jobless claims, which have been back down to historically low levels for weeks now. But the payroll survey coming in very light of expectations doesn’t match the figures we’re seeing elsewhere. In the household survey, 651K Americans became unemployed in December. That’s more than 3x today’s BLS headline.

Analysts do hypothesize about this a bit: the surge in self-employment, as indicated by a large number of job quits in the JOLTS survey but historic lows in jobless claims, may account for the lack of response by businesses tracked for the overall payroll figure. We also have been seeing major revisions for previous months for the better part of a year now: November’s disappointing initial headline of 210K job adds has been revised up to 249K; for October, the previous very strong 546K is now registered at 648K. That’s much more in-line with the other data.

So at first glance, what we see here is strength in the U.S. labor force with an accurate headline payroll number stubbornly late in arriving. This would lead us to expect upward revisions for today’s 199K in future BLS reports. Also note we’re not tracking the Omicron effect in this December survey; the Covid variant is likely to take something of a bite out of month-over-month jobs figures.

Other notes of strength: Average Hourly Earnings doubled month over month to +0.6%, and higher than the +0.4% expected, which would indicate a fairly tight jobs market. The U-6 (aka “real unemployment”) dropped to 7.3% from 7.7% in November — another metric back at pre-pandemic levels. Goods-producing jobs at 54K last month account for more than 25% of the total, which illustrates relative strength in Factory (+26K) and Construction (+22K).

Labor Force Participation stayed level at 61.9%, which is not indicative of a robust employment situation; during the pre-pandemic/pre-China trade war halcyon days of a few years ago, we were seeing these numbers closer to 64%. Unemployment for African Americans also ticked up last month to 7.1% from 6.5% the previous month. But the biggest disappointment comes from the most visible aspect of this BLS report: the weak headline number.

Pre-market futures strode into the green initially on the release, but have descended back into selling territory: the Dow and Nasdaq are both down -50 points at this hour, and the S&P 500 is -7. Market participants continue to seek out a value/growth balance after a strong start in new year trading. It may take strong Q4 earnings reports — growing in volume as of next week — to drag us out of the morass.

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