US job creation surprisingly soft in December 2013

In our view, December’s softness in job creation is not likely to alter the Fed’s plans to taper by USD 10bn at each upcoming FOMC meeting.

US non-farm payroll employment rose by only 74,000 m-o-m in December 2013, well below consensus expectations (+197,000). However, November’s figure was revised up by 38,000 (from 203,000 to 241,000).

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As this series on job creation is often very volatile (see chart above), we should not read too much into short-term changes in job creation. This was even more true last month as the exceptionally bad weather probably had a temporary negative influence on payroll numbers. Overall, employment growth has averaged 172,000 per month in Q4 2013, a reading similar to what was registered in Q3 (167,000 per month on average) and to the average number recorded since employment bottomed out in February 2012 (165,000).

Unemployment rate down further to 6.7%
Although job creation was surprisingly soft last month, the unemployment rate fell substantially more from 7.0% in November to 6.7% in December, well below consensus estimates (7.0%). The employment measure of the household survey was also not particularly buoyant (+143,000 m-o-m), but the size of the labour force fell sharply (by 347,000 m-o-m) and, therefore, the participation rate dropped from 63.0% in November to 62.8% in December. Once again, this contributed to lower the unemployment rate. As the change in the number of unemployed is by definition the difference between the change in the labour force and the change in employment (-347k minus +143k), unemployment declined by a sizeable 490,000 between November and December.

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Growth in labour income more robust q-o-q in Q4
Meanwhile, the average workweek fell back from 34.5 hours in November to 34.4 hours in December, also probably negatively influenced by bad weather. As a result, aggregate private hours worked (which combines the workweek with employment) declined by 0.2% m-o-m, following a strong 0.5% increase in November. As average hourly earnings rose by 0.1% m-o-m in December, the end result was that the index of “aggregate weekly payrolls” (calculated as a product of aggregate hours worked and average hourly earnings) dropped by 0.2% m-o-m. However, it still managed to grow by a solid 3.8% q-o-q annualised in Q4, following a soft increase of 2.8% in Q3. As this index is a good proxy for household income in the form of wages and salaries, these numbers show that despite December’s weakness, growth in labour income indeed regained some momentum in Q4 (see chart below).

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Conclusions: December’s job creation number was clearly weak, but it followed a strong reading in November and was probably temporarily influenced by unseasonably bad weather. Overall, we do not read too much into today’s report and we do not believe December’s softness in job creation will alter the Fed’s plans to taper by $10bn at each upcoming FOMC meeting.

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