US Payrolls Growth Unexpectedly Cooled In December

Corporate payrolls in the US increased by less than expected in December, rising 146,000 in 2017’s final month — well below November’s strong 239,000 rise, according to this morning’s monthly employment report from the Labor Department. Economists were looking for a stronger rise: 185,000 via Econoday.com’s consensus forecast. The softer gain kept the year-over-year trend unchanged at a modest pace, which suggests that the labor market in 2018 may face stronger headwinds than previously assumed.

Companies lifted payrolls by 1.64% for the year through last month, matching the annual rate in November. That’s still a healthy pace, but the latest numbers reinforce the possibility that labor-market growth will remain flat or trend lower this year. Indeed, the annual trend for private employment has been slowly trending down for two years and today’s figures from the Labor Department hold out the potential for more of the same in 2018.

“It’s a little soft across the board but overall, when you’re this close to full employment, I think it’s reasonable to see some slowdown in job gains,” notes Jeremy Schwartz, a US economist at Credit Suisse. “This year we should probably expect to see some slowdowns in job gains — it’s just harder to add jobs when there’s a smaller pool to choose from.”

The outlook for job growth looked stronger via yesterday’s ADP Employment Report, which estimated a 250,000 gain for private employment in December – the biggest monthly rise since March. The annual gain for this dataset also accelerated, reaching 2.1%, which matches October’s increase as the best pace in over a year.

“The job market ended the year strongly. Robust Christmas sales prompted retailers and delivery services to add to their payrolls,” says Mark Zandi, chief economist of Moody’s Analytics, which co-produces the data with ADP. “The tight labor market will get even tighter, raising the specter that it will overheat.”

Perhaps, although today’s government numbers offer a reason to remain cautious for projecting an acceleration in growth going forward. The employment trend is still convincingly positive, supported by low jobless claims and a generally upbeat macro profile for the US. In short, maybe today’s employment update is just a temporary bout of noise, in which case the signal is in the ADP release.

What is clear is that the divergence between the annual changes in the two series is the widest since 2009. A sign of increased turbulence ahead? Or is the Labor Department’s number headed for a major upgrade to catch up with ADP’s estimate.

The answer may be waiting in the January data that’s due next month.

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