The commentary is pouring in from Wall Street strategists and economists about today’s release of the December jobs report, which estimated that only 74,000 workers were added to nonfarm payrolls last month — well below the consensus prediction of 197,000.
Here is what they are saying:
Alan Ruskin, global head of G-10 FX strategy at Deutsche Bank: “One of the most confusing employment reports in quite a while. Most of the report is very weak, with the notable exception of the most important single variable, the unemployment rate. It does seem like weather influence in the report, most obvious in the fall in construction, that is likely representative of negative weather effects elsewhere. Most sector payrolls were weak, with the exception of retail trade — that bodes well for the strength of the consumer. The data will make both policymakers and the market take a pause for thought. Since bond bears were obviously dominant, it is no surprise to see a large positive Treasury bond response. However, in most markets I would expect limited follow-through from here, since it is extremely doubtful that the 87,000 private payrolls number is anywhere close to representing the underlying growth picture, while the 6.7% has again been achieved in the main by a slide in the participation rate and probably overstates strength. Nonetheless, in coming months, it is the faster unemployment rate downward trend that is likely to be sustained, much more than weak payroll growth.”
Jan Hatzius, chief economist at Goldman Sachs: Even taking into account the effects of weather, Hatzius calls the report “still a fairly sizable disappointment,” and the report is “definitely weaker beyond that factor,” according to Bloomberg. Hatzius also says that because the decline in labour force participation rate accounts for the entire decline in the unemployment rate, it shows how “relatively poor” an indicator of labour market conditions the headline unemployment rate actually is.
David Ader, head of government bond strategy at CRT Capital: “A weak gain of course, with the oddity of the drop in the unemployment rate a function of a drop in labour participation, so people leaving labour force, and so not a strong sign. The Fed recognises this, and while 6.5% might be the threshold idea, we can offer that as the drop is due to participation, the Fed will offer a lower threshold de facto. Weather clearly had an impact, with 273,000 out due to weather, really twice the norm, and so seasonals are a function here. Still, drop in work week and soft wage gains are there. Bottom line — taper is a bit up in air, but we think they will taper at a soft level (no more than $US10 billion) as weather is such a factor. Our odds have shaved down from near 100% to more like 70%, however. They won’t accelerate, of course. Note market bid but inhibited by the last FOMC day’s closing levels (our target you may recall).”
Ian Shepherdson, chief economist at Pantheon Macroeconomics: “The payroll numbers are the wildest of wild cards in recent memory and make no sense in the context of all the other labour market data. Weather effects may account for some or even all the shortfall, with the household survey reporting the the biggest number of people unable to work due to the weather in December since 1977, but note this number — 273,000 — is not seasonally adjusted and cannot just be added to payrolls to derive an ex-weather payroll number. Taking into account the upward revisions we think payroll growth is now trending at more than 200,000 per month and we have to expect a big catch-up number for January. The drop in the unemployment rate reflects a modest 143,000 rise in household employment and a 347,000 plunge in the labour force, so participation fell 0.2 percentage points to a new low of 62.8%. On a month-on-month basis, these data are not to be taken seriously but the drop in headline unemployment, if sustained, will further embolden hawks to push for faster tapering, fearing rising wage pressure. So far, the wage data show no sign of movement, but we do expect a clear acceleration over the course of the year. Note the annual household survey revisions were trivially small. Bottom line: The Fed will ignore the wild payroll number and taper again on January 29.”
Millan Mulraine, deputy head of U.S. research and strategy at TD Securities: “Despite the disappointing performance in December, the U.S. economy recorded a very robust 2.2 million jobs gain in 2013, adding to a similar increase the year before, and with other indicators of economic health posting to continued upside momentum in activity, we view this report as more an anomaly in an otherwise uptrend in employment activity. In fact, while we believe that the Fed will be more cautious going forward on their tapering agenda, they are unlikely to be dissuaded from ending the QE3 program this year.”
Adrian Miller, director of fixed income strategy at GMP Securities: “Now the head-scratching report is being attributed to weather, at least we are, as the Labour Department reported 273,000 people could not get to work in December due to weather, the largest since 1977. So, while the bond market’s rally following a weak report is holding, at least temporarily, equity futures seem to have gotten it right in that an initial sell-off has almost reversed. As it relates to using this data as an input in figuring out the Fed’s next move, we would advise throwing the report out as the results deviate significantly from other jobs-related data, (ADP, weekly claims and ISM employment component) that suggest a labour market that is building momentum. Also, while we maintain the labour market is indeed improving, as evidenced by the sizable upside revision to November’s NFP data and other anecdotal evidence, there remain many structural issues that need to be addressed. Also, until we receive data that is appreciably stronger than we have seen of late and with throwing out the December NFP report, we expect the Fed to maintain its $US10 billion per meeting cut in asset purchases.”
Andrew Wilkinson, chief market analyst at Interactive Brokers: “Companies added a mere 74,000 to payrolls to conclude the year and by less than half its expected gain of 195,000. That number was looking decidedly low following the earlier ADP report showing 238,000 jobs were added last month. Given the discrepancy, the easy option is to blame the weather. The BLS report today highlighted that adverse weather conditions had kept the most people at home since 1977 (more than one quarter of a million). It feels increasingly at odds with reality to point to the silver lining of a declining unemployment rate when job growth stalls as was the case in December. The headline rate slid by 0.3% as it did in November to 6.7%. But before sounding the warning bells over an economy falling off the cliff at year end, look at the chart of retail employment. Some 55,000 of the net 74,000 came from retail — a sign that retailers are finally accepting that they need bodies on the shop floor and in warehouses and perhaps that they are warming to future prospects. Jobs were lost in government (-13,000), healthcare (-6,000), IT services (-12,000) and construction (-16,000 — owing to cold weather and at odds with ADP data) in December.”
More to come…
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