LIVE MARKETS-Too rich for the Fed's blood: A jobs report drill-down

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TOO RICH FOR THE FED'S BLOOD: A JOBS REPORT DRILL-DOWN

Investors sailed into the weekend with a blockbuster jobs report to think about; on the one hand, the economy's in dandy shape. But the prospect of an indefinite Fed pause is prompting a rather steep selloff.

The U.S. economy added 256,000 jobs in December USNFAR=ECI, marking an unexpected 20.8% increase from the November number, and the heftiest monthly gain since May.

The print delivered a whopping 60% upside surprise versus the 160,000 consensus estimate.

For the year, payrolls landed north of 200,000 seven out of twelve months. Those same seven months marked the seven times that the headline number surprised to the upside.

Drilling below the headline, services added more jobs than the entire private sector - 231,000 vs 223,000 - more than overcoming the 21,000 jobs lost in goods-producing and manufacturing segments.

The over-riding message appears to be the labor market is not softening. On the contrary, it's robust and the report hardly provides impetus for the Fed to put on its rate-cutting hat again in the near term.

This is a good report for the economy, but the Fed’s not going to lower rates any time soon and the pause is likely to continue well into the second quarter,” Peter Cardillo, chief market economist at Spartan Capital Securities tells Reuters.

"If the labor market continues this way and Trump enacts his tariff policies, we’ve probably seen the end of the easing cycle," Cardillo adds.

Average hourly wage growth provided the first glimpse at December inflation.

On a monthly basis, the measure grew by 0.3% as analysts expected. Year-over-year, however, wage growth came in at 3.9%, a hair cooler than the 4.0% economists projected.

That's a step in the right direction, particularly on the heels of a hot November as far as inflation indicators are concerned.

But it's still well above Powell & Co's 2% annual target.

"The robust labor market and persistently high inflation provide compelling reasons for the Fed to maintain its current policy stance," writes Nigel Green, CEO of deVere Group.

"Investors must adapt to a reality where rates remain elevated, presenting both challenges and opportunities,” Green says.

The jobless rate USUNR=ECI also surprised analysts by dipping to 4.1% instead of holding firm at 4.2%, a number that already implied the U.S. economy was close to full employment.

At the same time, the labor market participation rate repeated November's 62.5% number.

That implies that the cooling jobless rate can't be blamed on folks leaving the workforce through retirement or discouragement over job prospects.

Average unemployment duration shortened to 23.3 weeks from 24.3 in November, with the long-term unemployed (jobless for 27 weeks or longer) accounting for a smaller slice of the total pie.

Taken together, one might conclude it's not taking quite as long for fired workers to find replacement jobs. But benefits expiry could also play a role.

Broken down by race and ethnicity, joblessness fell among White, Black, Hispanic and Asian workers, resulting in a slight narrowing of the White/Black unemployment gap, to 2.5 percentage points from 2.6 ppts the month prior.

(Stephen Culp)

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