The latest Non-Farm Payroll (NFP) report for December once again surprised the market with a headline number of +216K, beating the consensus estimate of +175K. This initially led to a positive reaction in equity markets, with the S&P 500 spiking 0.75% and bond yields rising to 4.08%. However, as the day progressed, it became evident that the underlying weakness in the labor market was being masked by the headline number.
One of the key points of concern was the downward revisions to October and November, resulting in a net change in payrolls of only +145K. When the add-on from the Birth/Death model was removed, the net NFP number was a mere +53K. The Household Survey (HS) painted an even bleaker picture, showing a decline of -683K jobs in December, with a significant drop in full-time employment.
The unemployment rates, both U3 and U6, remained steady or increased slightly, indicating a weakening labor market. Job growth was primarily driven by sectors like Health Care and Social Assistance, while the majority of the economy added only a modest number of jobs. The decline in the workweek and the rise in part-time employment further highlighted the challenges in the labor market.
The housing market also faced challenges, with New and Existing Home Sales declining due to higher mortgage rates. Existing homeowners with low mortgage rates were reluctant to sell, leading to a lack of supply and sticky home prices. However, with expectations of the Fed lowering rates in 2024, there is hope for an improvement in the housing market.
In the financial markets, the S&P 500 and bond yields experienced some pullback after a strong rally in the previous months. The anticipation of lower interest rates led to a slight decrease in yields, with mortgage rates also showing a similar trend.
In conclusion, the labor market showed signs of weakness, the housing market faced challenges, and the financial markets experienced some correction. The future outlook will depend on various factors, including Fed policy and economic conditions. It is essential to monitor these developments closely to navigate the evolving landscape effectively.
