It’s a new year and apparently it’s time for a new debate. Or at least a rehash of a former debate that’s been routinely embraced, dismissed and then embraced anew.
We find ourselves in the embracing-anew phase in terms of the thankless task of trying to figure out where the economy’s headed. This morning’s latest from the Labor Department on the employment picture is the source of our conundrum today. Unemployment remained steady at a low 4.5% in December as the pace of job growth for nonfarm payrolls picked up slightly to 167,000 last month.
Consider the monthly change in payrolls for the last few years, as per our chart below. Is this the profile of an economy headed for a material slowdown or worse? A casual reading of the trend might pause before giving a definitive answer. And for good reason. Employment trends are no trivial factor in driving the economy.

If Joe Sixpack and his friends are employed, the odds are diminished that they’ll rethink their spending habits, which of late has been one of spending more rather than less. What’s more, today’s employment report shows that wages continue to rise, with private-sector average hourly earnings in December edging up to $17.04 from $16.96 the month before and from $16.81 in the third quarter.
All this may come as something of a shock to the bond market, which has been predicting economic softness as opposed to strength. The yield on the 10-year Treasury has been in decline in the new year, dipping close to 4.60% in intraday trading yesterday, down from the recently high of 4.71% on December 29. Back in the summer, the 10-year changed hands at 5.0%.
The stock market is arguably more in tune with the message imparted in today’s employment report. The S&P 500 has been climbing steadily, almost mechanically since August. The sideways trading for much of December may give way to more buying after traders digest today’s news.
The notion that the economy may prove to be stronger than the bond market expects found support earlier this week in the news for the ISM Manufacturing index, which last month reversed its November slump, suggesting that resilience is alive and well.
The real question is how the Federal Reserve interprets today’s employment picture. The FOMC meets again at the end of this month. The Fed funds futures market continues to anticipate that policymakers will keep rates steady at 5.25%, and there’s not much deviation from that view in this market for the immediate future.
This much, at least, seems clear: ours continues to be period of transition, casting shadows and clouds on what comes next. The consensus view is unclear, meaning that any one data point can reorder perceptions by more than a little. Betting the ranch on any particular outcome looks increasingly imprudent for the moment. Tomorrow, of course, is another day.