US economy ends 2016 at full employment - Natixis

Analysts at Natixis note that the US nonfarm payrolls rose by 156K in December, slightly below expectations (consensus: +175K) but closer to Natixis estimates of +150K while the previous two months’ figures were revised upward (+19K).

Key Quotes

“The moderate slowdown in job creations was mostly driven by the services industry while employment gains remained stable for goods-producing industries. Other details of the report were largely positive: wages increased more than expected (reaching 2.9% YoY) while the unemployment rate inched up 0.1pt (to 4.7%) but with a rise in the participation rate. Overall, over the course of 2016, more than 2.1 million jobs have been created and the unemployment rate declined by 0.3pts to 4.7%, a level that is below the Fed’s estimate of full-employment (4.8%).”

“The 3 month average in job creations decelerated from +182K to 165K in December.”

“The pace of job creations remained stable in goods producing industries but decelerated in the services sector. The biggest contributors of the deceleration were the business services and trade sectors. Employment contracted in the construction sector but rose sharply in the manufacturing sector.”

“Details of the household survey were positive. Even though the unemployment rate inched up by 0.1pt to 4.7% it was accompanied by a rise in the participation rate (from 62.6% to 62.7%). The underemployment rate (U6:  a wider indicator of unemployment) lost 0.1pt to 9.2%, very close to its long term average (9.0%).”

“Wages also surprised on the upside with a faster than expected rebound: Average hourly earnings rose by 0.4% MoM (2.9% YoY), the fastest pace since the recovery.”

“In short, the NFP headline was slightly disappointing but details of report were definitely encouraging. Fed members are now probably looking more at the trend of the unemployment rate (below their current estimate of NAIRU) and the wage growth dynamic which suggests some nascent tensions on the labor market.”