The December change in nonfarm payrolls is up 216,000, above the consensus of up 164,000 in the Econoday survey of forecasters. However, there is a net downward revision of 71,000 in the prior two months that moderates the overall performance for the fourth quarter 2023. The monthly average for the fourth quarter is up 165,000 compared to 221,000 in the third quarter. The broadly slower trend for payroll growth is consistent with the FOMC's forecast for a loosening of conditions in the labor market in line with modest economic expansion.

In December, private payrolls are up 164,000 with goods-producers adding 22,000 jobs and service-providers gaining 142,000. Among goods-producers, construction is up 17,000 as homebuilding and home renovation and repair continue given low inventories of existing homes related to current homeowners staying put while mortgage rates are high. Payroll increases among service-providers are broad-based. The most substantial gain is for education and health services at 74,000, or a little under half of the private service sector. Government payrolls are up 52,000 in December with substantial hiring at the local government level with 19,200 in education and 17,700 excluding education jobs.

Average hourly earnings are up 0.4 percent month-over-month in December and up 4.1 percent compared to a year ago. The pace of rising wages appears to have stabilized in the past few months while remaining above the pace of inflation.

The December report includes annual revisions to the household survey. Revisions are minor and do not change the underlying picture for the labor market. Annual revisions to the establishment survey will be released with the January data on February 2.

The unemployment rate is 3.7 percent in December, the same as in November and very little changed for the past six months. The U-6 unemployment rate which includes those persons marginally attached to the labor force and those working part-time for economic reasons is up a tenth to 7.1 percent. There is a hint here that those who have more difficulty in finding a full-time job for whatever reason are not as able to participate as they might want.

The labor force participation rate fell 3 tenths to 62.5 percent in December, its lowest since 62.5 percent in February. The decline suggests that the rebalance of labor supply and demand was setback in December. The size of the labor force fell 676,000 to 167.451 million with the number of persons employed down 683,000 to 161.183 million while the unemployed are essentially unchanged at up 6,000 to 6.268 million. Data elsewhere show that layoff activity in December was less than usual in 2023.

Persons working part-time for economic reasons are up 217,000 to 4.211 million in December. Job losers are unchanged at 3.058 million. Voluntary job leavers are up 12,000 to 833,000 and new entrants to the labor force are up 27,000 to 609,000. Overall, there was less churn in the labor market in December from the newly unemployed, job changers, and/or new entrants like college graduates.

A 164,000 rise is Econoday's consensus for nonfarm payroll growth in December versus 199,000 growth in November which was on the high side of the consensus range. Average hourly earnings in December are expected to rise 0.3 percent on the month for a year-over-year rate of 3.9 percent; these would compare with November's higher-than-expected monthly rate of 0.4 percent and an as-expected yearly rate of 4.0 percent. December's unemployment rate is expected to rise 1 tenth to 3.8 percent from November's 3.7 percent, which was 2 tenths lower than expected.

The most closely watched of all economic indicators, the employment situation is a set of monthly labor market indicators based on two separate reports: the establishment survey which tracks 650,000 worksites and offers the nonfarm payroll and average hourly earnings headlines and the household survey which interviews 60,000 households and generates the unemployment rate.

Nonfarm payrolls track the number of part-time and full-time employees in both business and government. Average hourly earnings track employee pay while the average workweek, also part of the establishment survey, tracks the number of hours worked. The report's private payroll measure excludes government workers.

The unemployment rate measures the number of unemployed as a percentage of the labor force. In order to be counted as unemployed, one must be actively looking for work. Other commonly known data from the household survey include the labor supply and discouraged workers.

If ever there was an economic report that can move the markets, this is it! The anticipation on Wall Street each month is palpable, the reactions can be dramatic, and the information for investors is invaluable. By digging just a little deeper than the headline unemployment rate, investors can take more strategic control of their portfolio and even take advantage of unique investment opportunities that often arise in the days surrounding this report.

The employment data give the most comprehensive report on how many people are looking for jobs, how many have them, what they're getting paid and how many hours they are working. These numbers are the best way to gauge the current state as well as the future direction of the economy. Nonfarm payrolls are categorized by sectors. This sector data can go a long way in helping investors determine in which economic sectors they intend to invest.

The employment statistics also provide insight on wage trends, and wage inflation is high on the list of opponents of easy monetary policy. Fed officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Fed to maintain a more accommodative monetary policy. If inflation is a problem, the Fed is limited in providing economic stimulus.

By tracking the jobs data, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.


Importance
The employment situation is the primary monthly indicator of aggregate economic activity because it encompasses all major sectors of the economy. It is comprehensive and available early in the month. Many other economic indicators are dependent upon its information. It not only reveals information about the labor market, but about income and production as well. In short, it provides clues about other economic indicators reported for the month and plays a big role in influencing financial market psychology during the month. Additionally, the Fed has made 6.5 percent unemployment a threshold for considering changes in policy - both for quantitative easing and the fed funds rate. And the Fed has emphasized that it is overall labor market conditions that matter - not just a specific number.

Interpretation
The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.

The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.

Nonfarm payroll employment indicates the current level of economic activity. Increases in nonfarm payrolls translate into earnings that workers will spend on goods and services in the economy. The greater the increase in employment, the faster is the total economic growth. When the economy is in the mature phase of an expansion, rapid increases in employment cause fears of inflationary pressures if rapid demand for goods and services cannot be met by current production.

When the average workweek trends up, it supports production gains in the current period and portends additional employment increases. When the average workweek is in a declining mode, it probably is signaling a potential slowdown in employment growth-or even outright declines in employment in case of recession.

Gains in average hourly earnings represent wage pressures. It is worth noting that these figures aren't adjusted for overtime pay or shifts in the composition of the workforce, which affects wages on its own. Market participants believe that a rising trend in hourly earnings will lead to higher inflation. But if increased wages are matched by productivity gains, producers likely will not increase product prices with wages because their unit labor costs are stable.