Jobs Report Unlikely to Move the Fed Needle... But Here's My Secret Fear
Let's break down the December employment numbers and their implications for the market, the Fed and more.
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What to think of the December jobs report?
At first glance, I think I see BLS labor market survey results for the month of December that were not good, and were not awful, but do show a demand for labor that more or less continues to deteriorate, but not very rapidly.
Let's dig in...
Job Creation
Non-farm payrolls which, as I state upon every release, will likely be revised in coming months, did not tell much of a tale on Friday morning. At the headline level, according to the Establishment Survey, the U.S. economy created 50,000 jobs in December, just a shade below Wall Street's expectations.
Close enough, right? Not so fast, my friend.
The October NFP print was revised lower from -105,000 to -173,000, while the November NFP print was revised lower as well, from 64,000 to 56,000. The total downward revision over those two months of having created 76,000 left Friday morning's number at a net non-farm payroll number for job creation at -26,000 versus where we thought we were coming in. Looking solely at the December data, government hiring accounted for 13,000 of those jobs. Hence, the U.S. economy organically created just 37,000 private sector jobs.
Is there good news on job creation? Yes, to a degree. Moving on to the Household Survey, there were 232,000 more employed persons in the U.S. in December than there were in November. But see how the two surveys rarely tell the same story? 50,000 is a weak month for job creation. 232,000 would be a very robust month for job creation. In addition, there were 278,000 fewer unemployed persons in the U.S. in December than there had been in November. The negative side of that is that 229,000 individuals dropped out of the labor force, but that did make for an improved unemployment rate.
Key Data
The Unemployment Rate, which is drawn from the Household Survey, moved lower to 4.4% in December from 4.5% in November, as participation decreased. Participation fell to 62.4% in December from 62.5% in November, as mentioned above. Still drawing from the Household Survey, interestingly, the Employment to Population Ratio went the other way, improving to 59.7% from 59.6%.
Check this out too, because this is perhaps a positive development. The number of individuals working part-time for economic reasons decreased by 146,000 in December while the number of individuals working part-time for non-economic reasons decreased by 817,000. That's 963,000 fewer as job creation, depending on which survey you trust for the month, was either 50,000 or 232,000. This implies that a large number of workers that had been downgraded from full-time to part-time by their employers earlier in the year may have been returned to full-time status, at least for the holidays.
That makes January a truly interesting month. This also took the Underemployment Rate (U-6 unemployment), all the way down to 8.4% in December from 8.7% in November. That's a huge one-month improvement in that metric. Again, we'll have to see if that was a seasonal push.
The average workweek for full-timers, which is also a measure of labor market demand, printed at 34.2 hours, down from 34.3. That's a negative indicator of labor market demand. However, wage growth impressed. Average hourly earnings, on a year over year basis, printed at growth of 3.8%, up from 3.6% in November and well above the 3.6% that most economists were looking for.
Demographics
Here is the unemployment rate along gender, ethnic background and education lines. Reminder: The rates are from November to December...
-- Adult Men... decreased from 4.1% to 3.9%.
-- Adult Women... decreased from 4.1% to 3.9%.
-- Teenagers... decreased from 16.3% to 15.7%.
-- White... decreased from 3.9% to 3.8%.
-- Black or African American... decreased sharply from 8.2% to 7.5%.
-- Asian... held firm at 3.6%.
-- Hispanic or Latino... decreased from 5.0% to 4.9%.
-- High School Dropouts...decreased sharply from 6.8% to 5.6%.
-- High School Graduates... decreased from 4.4% to 4.0%.
-- Some College/Associate Degrees... increased from 3.5% to 3.8%.
-- Bachelor's Degrees and more... decreased from 2.9% to 2.8%.
Markets & Policy
Financial markets have not had an especially strong reaction either way to this release and really how could they? There are some obvious negatives for the economy, such as continued sluggishness in job creation and a drop in participation. That said, there are positives as well such as wage growth and improving unemployment rates across almost all demographics.
Does that improvement as well as the shift of nearly one million jobs from part-time to full time continue after the holiday season where any increased demand for labor might be looked at as potentially temporary? Only time will tell.
Equities are trading moderately higher, but they were doing that ahead of the report. We also may hear from the Supreme Court soon on the legality of the president's tariffs, which will impact markets as well. The long end of the Treasury yield curve has not moved much at all.
The deal is this: There is nothing in these survey results that would sway the FOMC one way or the other, in my opinion. There was some strength, but the labor market does appear to be gradually weakening. As for a January 28 rate cut, futures markets are now pricing in just a 5% probability, down from a 12% likelihood earlier Friday morning. These markets still see a 71% probability for a total of 50-basis points worth of rate cuts for all of calendar-year 2026.
My Secret Fear Going Forward...
It's really no secret. I have been public in my thoughts that lower taxes, deregulation and a sharp increase in productivity generated through the implementation of generative and agentic artificial intelligence will likely produce close to robust data for GDP for the coming year and maybe years.
This report does nothing to change my view that the U.S. and eventually global economies could experience such growth without a strong labor market. Economic activity could be driven to some degree by federal spending and business-to-business trade, with reduced reliance upon the driver of U.S. economies past, the consumer. We shall see.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
