December jobs report falls short of expectations

The U.S. Bureau of Labor Statistics (BLS) released its report on December’s job market on Friday, revealing that nonfarm payrolls increased by 145,000 during the month.

Although the gain is a solid one given the economy’s overall health, the number still fell short of the 160,000 expected by economists. It’s a disappointing figure after an impressive November that saw the addition of 256,000 jobs (downwardly revised from an initial report of 266,000 new jobs).

Some employment sectors saw notable gains as retail trade added 41,000 jobs and health care added another 28,000. Other industries, such as transportation and warehousing (which lost 10,000 jobs) and manufacturing (which shed 12,000) logged small losses. For 2019 as a whole, gains in manufacturing jobs plummeted year over year, with the sector adding only 46,000 positions after an increase of 264,000 in 2018.

Disappointment in the lower-than-expected tally might be compounded by unofficial numbers that were announced shortly before the release of the BLS report. Earlier in the week, payroll-processing company ADP, in conjunction with Moody’s Analytics, said that non-government payrolls increased by 202,000 in December. While ADP and BLS don’t use the same methodology in compiling employment numbers, observers often consider ADP’s report as a key precursor to the official figures. Moreover, ADP’s numbers often fall below those of BLS, foreshadowing a big gain that didn’t pan out.

Wage-growth data also was weak as average hourly earnings increased by 2.9% year over year in December. That’s down from 3.1% annual growth this past November and matches September 2019 as the smallest annual gain since summer 2018.

The U.S. unemployment rate held steady at 3.5%, matching September and November of last year as the lowest readings since 1969. But Mark Zandi, chief economist for Moody’s, cautioned after the ADP report that the persistently rosy number is likely to climb if employers don’t add more jobs.

“Looking through the monthly vagaries of the data, job gains continue to moderate,” Zandi said. “Manufacturers, energy producers and small companies have been shedding jobs. Unemployment is low but will begin to rise if job growth slows much further.”

Still, economists found other silver linings to the end-of-year jobs announcement as the longest growth period in the nation’s history keeps churning along.

Joel Kan, associate vice president of economic and industry forecasting for the Mortgage Bankers Association, acknowledged that “job growth increased less than expected.” But even in anticipating that job gains may continue to slow, he noted that full-year numbers for 2019 still a painted an overall picture of health.

“While last year’s job gains were the slowest since 2011, it was another solid year of job creation and unemployment remains at a 50-year low,” Kan said. “The economy slowed in 2019 relative to 2018, and we expect the slowdown to continue into 2020.”

Odeta Kushi, chief economist at First American Financial Corp., noted that the BLS report marked 10 consecutive years of payroll gains. She also noted the “steady rise of the labor-force participation rate, which is 0.6 percentage points higher than one year ago, and now only 1.7 percentage points below the peak in 1999.”

As that participation rate rises, competition among employers for workers increases as well, potentially leading to higher wages, Kushi said.

“That’s good news for potential homebuyers in 2020, who will benefit from the affordability boost that comes from increased purchasing power,” she said.

In the meantime, Kan said that current housing-market conditions remain favorable.

“With such a tight job market and low unemployment rate, we still hold to the view that conditions are supportive for home-purchase activity, and are cautiously optimistic that we will see gradual growth in home sales and purchase originations in 2020,” he said. “However, financial markets will likely remain volatile due to ongoing geopolitical uncertainties.”


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