Strong December Employment Report Conflicts with Other Jobs Data

Following the release of the December employment data that showed the economy added 256,000 new jobs versus expectations of 155,000, bond yields pushed higher, and equities suffered a broad-based selloff. This is not the first time the markets reacted violently to stronger-than-forecast headline jobs data, which repeatedly is revised lower in the following months.

Every administration is angling for strong employment numbers, but for 2024, the follow-on adjustments have been to a point where the data put out by the Bureau of Labor Statistics (BLS) looks highly politicized. Just some examples of the revisions:

January: Initially reported 353,000, revised down to 229,000 and further to 256,000.

February: From 275,000, revised to 270,000 and finally 236,000.

April: From 175,000 to 165,000, then to 108,000.

May: From 272,000 to 218,000, ending at 216,000.

November: Expected at 227,000, revised to 212,000.

Only during the month of March 2024 were non-farm payrolls revised higher — from 303,000 to 315,000.

And then there was the August 1, 2024, bombshell when the BLS published their annual jobs report, announcing that there were 818,000 fewer jobs than previously estimated. It was understandable when investors were suggesting malice in the reporting process. It was the largest such downgrade in 15 years. The largest downward revision was in professional and business services, with estimated payrolls lowered by 358,000, followed by a 150,000 downgrade in leisure and hospitality and 115,000 in manufacturing.

The stunning downward revision set in motion the Fed’s half-point fed funds rate cut on Sept. 18, the first rate reduction in over two-and-a-half years after a period largely focused on combating inflation. Now, the Fed is being called into question about this half-point cut, with the latest round of inflation and economic data being at or better than forecast. However, taking into account other employment data suggests the Fed is on the right track.

Continuing Jobless Claims in the United States, which are seen as a proxy for the number of people receiving unemployment benefits, rose to 1,867 thousand in the week ended December 28th, 2024, compared to a downwardly revised 1,834 thousand in the previous period and forecasts of 1,870 thousand. For all of 2024, the overall trend in jobless claims was higher as can be seen in the bar chart below.

Running counter to the hot December non-farm payrolls number is ADP Employment Change for December. Private business in the United States added 122,000 workers to their payrolls, the least in four months, compared to 146,000 in November and below forecasts of 140,000. “The labor market downshifted to a more modest pace of growth in the final month of 2024, with a slowdown in both hiring and pay gains. Health care stood out in the second half of the year, creating more jobs than any other sector,” said Nela Richardson, chief economist, ADP.

One area of steady job growth that is about to come to a grinding halt is that of the U.S. Government payrolls when the Department of Government Efficiency (D.O.G.E) goes into action on Jan. 21. The U.S. government at the federal, state and local level added an average of 37,000 jobs per month in 2024, and average monthly gains of 59,000 in 2023. That amounts to 444,000 new government hires in 2024 and 708,000 in 2023, or 1,152,000 total over the two years.

On Jan. 10, KPMG commented on the labor market stating “Payroll employment rose by 256,00 in December, after a downwardly revised 212,000 in November. We generated 2.2 million jobs in 2024, the slowest pace since 2020, but still above 1.99 million in 2019. Brace yourself for significant downward revisions to payrolls in 2023 and early 2024 when benchmark revisions are released with the January employment report in early February.” If KPMG is right, then this sharp pullback in stocks and corresponding spike in bond yields provides a buy-the-dip moment for both markets.