Economists React To Blowout December Jobs Report

For the second straight morning, U.S. investors concerned about an imminent recession received data suggesting the economy is stronger than expected.

The S&P 500 traded higher on Friday morning after the U.S. jobs market bounced back from a relatively weak November reading and exceeded economist expectations in the month of December.

The Numbers

The Labor Department reported U.S. non-farm payrolls were up 312,000 in December, well above the 176,000 economists were expecting. Private payrolls were up 301,000 compared to economist expectations of 176,000. The unemployment rate increased by 0.2 percent from a month ago to 3.9 percent, above expectations of 3.7 percent.

Friday’s jobs report comes one day after an ADP/Moody’s report found U.S. private payrolls were up 271,000 in December, the largest monthly gain since February of 2017.

Wage growth of 3.2 percent equaled October’s reading as the highest increase since 2009.

The Labor Department also revised its previously reported November jobs numbers higher, bumping it from 155,000 to 176,000. October’s reported number was revised downward from 274,000 to 237,000. The three-month average payroll gains now stands at an impressive 254,000.

The health care industry led the nation’s job growth in December, adding 50,000 jobs, Government jobs were up 11,000 in the month, while the retail sector added 24,000 jobs as part of the holiday shopping season.

Experts React

Allianz Chief Economic Adviser Mohamed El-Erian said in an uptick in the labor participation rate is good news for the economy.

“Strong US #jobs report for December--not only in terms of job creation (312,000, close to twice consensus expectations) and wage growth (3.2%), but also in terms of revisions to prior months,” El Erian wrotein a tweet.

“With the exception of higher labor participation which supports the notion of some remaining slack in the labor market, this strong December jobs report will be seen IMO by #CentralBankers as supporting more rate hikes & no tweaks to the balance sheet policy.”

Bankrate Senior Economic Analyst Mark Hamrick said the U.S. experienced a “hiring heat wave” in the month of December.

“The solid news on the job market is one argument to allow the Federal Reserve to stick to its forecast for two interest rate hikes in 2019 despite low inflation,” Hamrick said. “We'll need to see whether business and consumer confidence holds up, or not, in the coming months amid the headwinds including U.S./China trade and slowing global growth.”

Added, TD Ameritrade Senior Trading Specialist Shawn Cruz, "The jobs report today was pretty encouraging. I think took the fears of a recession in the near term off the table. There were some concerns about an economic slowdown in the first half of 2019 and this allays some of those fears. I don’t think a strong jobs report is enough for the sake of a strong report, but if you look at the makeup manufacturing came in ahead of what was expected and that’s what is used as a leading indicator."

Joseph Brusuelas, Chief Economist at RSM US LLP, said the December report doesn't change his expectations for a six-month pause in Fed rate hikes.

"Today’s data reinforces the policy risks that lie ahead in 2019 even as the exaggerated topline data points to an underlying trend of roughly 220,000 in a year when the economy generated 2.638 million. Our model of the Fed’s reaction function indicates the Fed should remain on pause for the first six months of 2019 and then lift rates by 25 basis points in June with an additional increase of 25 basis points in final quarter of the year," Brusuelas said.

Price Action

Investors gave the report a warm reaction on Friday morning. The SPDR S&P 500 ETF Trust SPY and the SPDR Dow Jones Industrial Average ETF DIA were both up 1.3 percent in pre-market trading.

Related Links:

ADP Shows Largest Payroll Increase In Nearly 2 Years

Economists React To The November Jobs Report