- An overall solid employment report with maintained positive momentum in job growth in the private sector and an uptick in hourly earnings and the workweek all support household income growth.
- The unemployment rate increased on the margin driven by an increase in the labour force.
- The Fed is likely to welcome the improvement in private sector job growth and the latest FOMC minutes showed the Fed is starting to think about its QE exit. However, a scale back of the Fed's asset purchases is not imminent.
US employment rose by 155,000 in December, close to consensus but below our call for 190,000 and there were upward revisions of 14,000. Private payrolls growth was stronger with 168,000 jobs added and with upward revision of 38,000 – so overall close to our 195,000 call for this sector.
In contrast to the past six months, employment growth was driven by the goods producing sector with manufacturing employment up 25,000 and construction 30,000, partly reflecting some Sandy-induced rebound. On the contrary, employment growth in the private service sector disappointed, with retailers and trade shedding 22,000 jobs. This is in line with the reports of sluggish December holiday sales and the latest cooling in consumer sentiment.
Some important positive detail is the uptick in the private workweek from 33.7 to 33.8 hours and hourly earnings growth jumping to 2.4% on a three-month annualised basis from a low point of just 1.0% only two months ago. This is good news for household income growth and should cushion some of the blow to income growth from the payrolls tax rate hike, which was part of the 1 January budget deal. Our income proxy now suggests labor income growth is running at 4% entering this year.
Turning to the household survey, unemployment held steady at 7.8% but on decimals rose to 7.849% from 7.753% as employment rose 28,000, while the labor force grew almost 200,000.
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