What Most Analysts Missed About the December Jobs Report

The numbers are in, and according to the Bureau of Labor Statistics, the U.S. economy added 145,000 jobs in December. That’s 15,000 short of the 160,000 consensus estimate from economists polled by Dow Jones.

Wage growth disappointed, too growing 2.9% year-over-year vs. a forecasted gain of 3.1%. December was the first month since July 2018 that wages grew less than 3% from the year prior. It was a jobs report that many analysts are calling “soft” after its release.

Investors, who could’ve reacted poorly to the meager payroll gain, instead sent the Dow to 29,000 for the first time ever – a major achievement that was a pipedream just one year ago after equities collapsed on the Fed’s ill-timed rate hike.

“The December jobs report was a little softer than expected but not so much so as to stoke big worries about the US consumer and the health of the overall economy,” said Alec Young, FTSE Russell’s director of global markets research.

“Although both readings were slightly below expectations and the recent trend, neither is overly alarming by itself.”

And though everyone’s focused on the jobs added (or lack thereof), most folks missed December’s most important stat:


The unemployment rate stayed steady at its 50-year low of 3.5% last month; something analysts expected.

But what they didn’t see coming was a drop in the “real” unemployment rate, which factors in Americans out of the workforce and those who are underemployed.

The “real” rate fell 0.2% to 6.7%, the lowest it’s ever been. In other words, never before in U.S. history have American workers been able to find a job when they wanted one. That’s a huge deal, and part of the reason why the market is trading “flat” this morning instead of sinking.

“The broadest measure of unemployment (and our choice for the ‘real’ unemployment rate), the U-6 measure, fell to 6.7% in December — both a new cycle low and a new all-time low,” said Payden & Rygel Chief Economist Jeffrey Cleveland.

“The most important takeaway in my view: the broader measures of unemployment continues to improve, yet wages remain softer than expected,” he added.

Cleveland also observed that “real” wage growth (not just unemployment) moved in the right direction.

“Real wage growth is positive,” he said.

“Conclusion: no signs of ‘overheating,’ the labor market has room to tighten future in 2020. We aren’t at the unemployment ‘lows’ yet and there’s certainty no need for the Fed to move to tighten monetary policy based on the inflation outlook,” so “monetary policy will remain easy for the foreseeable future.”

Other industry leaders, while not necessarily upset about the jobs report, believe that the economy could be running out of steam despite a robust labor force.

“The jobs market has proven to be more resilient than anyone expected,” said Steven Rosen, CEO of Resilience Capital Partners. “The expansion is aging, and will need a boost to keep going.”

That boost could come by way of a complete trade war defusal or Fed that leaves rates well enough alone.

Steady unemployment “shows welcome consistency that demonstrates an underlying resiliency of the job market,” Rosen observed, arguing that there won’t be “a serious downturn this year.”

Past market performance supports Rosen’s theory. Historically, the last year of a president’s term results in big gains for equities. Buoyed by a strong jobs market, 2020 looks as though it will fulfill that prophecy.

Even at the peak of an 11-year economic expansion – something else that’s breaking all the rules of traditional cycle economics. In many ways, investors are now in the “Wild West”. In 2019, bulls stuck to their guns and were rewarded for their patience.

And as long as Americans are still working en masse, our chances look good for a repeat performance.


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