December Payrolls Preview: All Signs Point To A Miss

The pace of payroll growth is expected to ease again in December after November's unexpected surge, in keeping with the latest ADP print as well as the Fed’s view that it is “cooling gradually”. The jobless rate is expected to be unchanged at 4.2%, while the rate of average hourly earnings is seen cooling a little in the month, but maintaining its brisk annual pace. According to Goldman, labor market proxies have been mixed; weekly initial jobless claims data ticked up a touch in the December reference period (even if it tumbled just after), while continuing claims were unchanged; and even though the ADP’s private payrolls print disappointed expectations to the downside, the  JOLTS job openings (for November) soared even as the hiring and quits rates fell; and while consumers became more confident in the labor market in December, their six-month outlook worsened a little; finally, business surveys were mixed, with the services sector performance remaining in expansion, though the manufacturing sectors performance has been contracting for months. All that said, besides a brief kneejerk move in the subsequent minutes, don't expect a big market repricing tomorrow: that's because Fed policymakers do not appear to be concerned about the labor market, noting that it is strong, has been cooling gradually, and with downside risks diminishing; crucially, policymakers do not think that the labor market is a source of inflation pressures.

Here are the details of what Wall Street expects from Friday's numbers:

• The median analyst consensus expect the US economy will have added 165k payrolls to the economy in December (range of forecasts: 100-268k), slowing from the 227k added in November (which included 110k of those impacted by Hurricanes and Boeing strikes in October).
  • If consensus is accurate, payrolls growth will slow relative to the three-month average (of 173k) and the 12-month average (of 190k), but rise relative to the six-month average rate (of 143k)
  • While their track record has been very spotty of late, Goldman is taking the under - way under - and estimates payrolls rose by only 125k in December, far below consensus, as alternative measures of employment growth generally indicated a sequentially slower pace of job creation, with Goldman also estimating a seasonal headwind of roughly 50k