January 5, 2018 / 1:54 PM / 7 months ago

U.S. December payrolls gains short of estimates

(Reuters) - U.S. job growth slowed more than expected in December amid a decline in retail employment, but a pick-up in monthly wage gains pointed to labor market strength that could pave the way for the Federal Reserve to increase interest rates in March.

FILE PHOTO: Recruiters and job seekers are seen at a job fair in Golden, Colorado, June 7, 2017. REUTERS/Rick Wilking

KEY POINTS:

* Total payrolls rose 148,000 vs 190,000 estimate and upwardly revised 252,000 prior (original 228,000)* Private payrolls rose 146,000 vs 185,000 estimate and upwardly revised 239,000 prior (original 221,000)

* Unemployment rate unchanged at 4.1 pct vs 4.1 pct estimate

* Average hourly earnings rise 0.3 pct month-to-month vs 0.3 pct estimate and downwardly revised 0.1 pct prior (original 0.2 pct)

* Average hourly earnings rise 2.5 pct year-over-year vs downwardly revised 2.4 pct prior (original 2.5 pct)

* U-6 rate pct rises to 8.1 pct vs 8.0 pct prior* Labor force participation unchanged at 62.7 pct

* Household survey: Workforce grew by 64,000; employed rose by 104,000; unemployed fell by 40,000

COMMENTS:

BRYCE DOTY, SENIOR PORTFOLIO MANAGER, SIX FIXED INCOME ADVISORS LLC, MINNEAPOLIS:

“The  most dire aspect of the report is the loss of retail jobs over the holiday season. We might see record losses in traditional retail jobs in the first quarter with more closings of brick and mortar stores. The market is shrugging it off because it’s not weak enough to detract the Fed from raising rates further. The modest rise in average hourly wage number should give the Fed some breathing room.

“The market thinks this number is not super relevant because this was before tax reform, related salary increases and bonuses. We could see some traction in wage inflation in the next three to six months. I thought the yield curve would flatten more with the miss in the payrolls and the 30-year yield coming down on relatively muted wage inflation number. The response is so muted with investors wary of what’s to come. We could see yields up by the end of day if we see a strong ISM services number.”

PAUL NOLTE, PORTFOLIO MANAGER, KINGSVIEW ASSET MANAGEMENT, CHICAGO:

“It was a little disappointing. The market doesn’t care. The margin of error on this number is always big.”

“I don’t see it as all that bad. What we’d be concerned about is if we see a couple of prints below 100,00. Until then we’re ok.” “Employment and the market should be good through the end of the first quarter and maybe the first half. It’s going to be a tale of two years. The second half is going to be tough because of rougher earnings comparisons.”

JIM VOGEL, INTEREST RATE STRATEGIST, FTN FINANCIAL, MEMPHIS:

“The jobs numbers at 148,000 for December were below the lowest estimates out of the group of 75 or so that were posted. But the solid metrics posted in both unemployment and in average hourly earnings growth have kept the market largely in line. Bond yields were most vulnerable to an upside surprise, not quite as reactive to a downside surprise because we have under-reacted to previous good news, including good auto sales in December relative to expectations, considering the ISM manufacturing numbers, considering the Chicago purchasing all the way back last week, so we had more room for rates to increase if the numbers were 210,000 or 225,000 this morning.”

“Wage growth saw a modest pickup but we kept the yield, the year increase at 2.5 percent, which is still well on the low side of what you would anticipate if the Fed’s core theory about increasing jobs forcing employers to raise wages were operational right now.”

MARK MCCORMICK, NORTH AMERICAN HEAD OF FX STRATEGY, TD SECURITIES, TORONTO:

“Pretty soggy data across the board. We think this could reduce the chances of a March hike and further put pressure on the dollar. So we see a U.S. rate hike in June instead and just two rate increases instead of the three that the Fed expects. The dollar has not been getting any support from recent positive news because global growth is expanding.”

AARON KOHLI, INTEREST RATE STRATEGIST, BMO CAPITAL MARKETS, NEW YORK:

“December payrolls disappointed across the board. We don’t expect this print to materially deter the Fed as there are two additional NFP reads before the March meeting and a new chair on hand. We’re also much more focused on the CPI print next Friday as far more relevant to the Fed’s reaction function over this year.”

CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, INDEPENDENT ADVISOR ALLIANCE, CHARLOTTE, NORTH CAROLINA:

“It’s a really weak number, surprising given how strong ADP was on Wednesday. However it’s only one month. People usually look at the three month average as it’s usually a better gauge.”

“The market will probably overlook this for now. I’d look next month for confirmation if it’s a trend.”

“Sometimes it’s sampling error and sometimes timing.”

“You’d expect if this was a trend that futures would go down. The fact futures are staying constant shows the market is overlooking it for now.”

THOMAS SIMONS, MONEY MARKET ECONOMIST, JEFFERIES, NEW YORK:

“Payrolls came in below expectations, but the details are generally fine. Average hourly earnings rose 0.3 percent and the upward revisions to last month take some of the sting out of the miss against consensus in December. 

“Wages continue to move in the right direction, though at a somewhat slower pace than one would hope for at this point in the cycle. As slack in the labor force continues to diminish, it will accelerate.”

MARKET REACTION:

STOCKS: S&P e-mini futures ESv1 hold to earlier gains

BONDS: 2- US2YT=RR and 10-year US10YT=RR Treasury yields rise after an initial dip; yield curve steepens

FOREX: The dollar index .DXY edges down from prior level

RATE FUTURES: Fed funds contract for December 2018 FFZ8 down 1 basis point on the session; implied yield 1.94 pct

Americas Economics and Markets Desk; +1-646 223-6300

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