We Can Work It Out: Update on Labor Market

“Jobs day” last Friday was a bit of a dud. At the headline level, nonfarm payrolls disappointed with a gain of 199k, which undercut the consensus estimate of 450k. November’s gain was revised higher from 210k to 249k, but that wasn’t enough to offset the miss in December. As was the case in November, there was yet another wide divergence between the headline payroll and household surveys (the latter increased by 651k). That underscores the reality that seasonal quirks remain a factor. The large jump in household employment trounced the more subdued increase in the labor force; hence the drop in the unemployment rate, which is calculated based on the household survey.

Household Survey Jobs > Payrolls

At the sector level, it’s clear that services jobs helped drive overall payrolls, given leisure & hospitality added 53k jobs and professional & business services added 43k jobs. The only rub with the former cohort is that payroll data was collected before omicron-related restrictions and closures; and as such, January may bring a bit of a drag for the sector. Additionally, the retail sector saw a decline in payrolls for the second month in a row, which unfortunately confirms some weakness in demand and consumption toward the end of 2021.

Leisure/Hospitality on Top Again

Fortunately, we are starting to get some more clarity on the wage data. Average hourly earnings rose at a 4.7% annual rate in December, which (as shown below) is still quite strong relative to history but is down slightly from the most recent peak of 5.1% in November. Mix-shift effects are always at play with this series, but we’re clearly moving past the distortions, which caused the boom in 2020—when low-paying jobs were cut at a disproportionate rate—and the bust in 2021—when those jobs started to come back.