Private Payrolls Rise 312K, Unemployment Ticks Up to 3.9%

Put aside the dovish talk about a reluctant Federal Reserve after today's employment report for December which far surpasses expectations. Nonfarm payrolls rose 312,000 for the strongest showing since February last year and among the very strongest of the whole expansion. And there are inflationary signs as well with an outsized 0.4 percent rise in average hourly earnings which is the hottest reading since December 2017 and also among the very strongest of the expansion. The year-on-year rate, which forecasters were expecting to slow, rose 1 tenth to 3.2 percent for a new expansion high.

A head fake in the report is a 2 tenths rise in the unemployment rate to 3.9 percent which, instead of reflecting moderation in the labor market, reflects a very welcome rise in those actively looking for work, to 6.294 million from 6.018 million. The participation rate is another strong positive in the report, rising 2 tenths to 63.1 percent which is also better than expected.

Turning back to payrolls, manufacturing rose a higher-than-expected 32,000 to extend its long run of strong showings. Construction posted an outsized 38,000 increase with mining, a much smaller industry, rising an in-trend 4,000. Retail trade rose a solid 24,000, trade & transportation a solid 34,000 after a 68,000 November surge, and professional & business services gained a very strong 43,000 with temporary help, which is in demand, up 10,000.

Yet another positive in this report, which goes along with manufacturing payrolls, is a bounce higher for manufacturing hours in what will be a positive for the coming industrial production report. Recent economic data had been softening but a report like this changes the discussion, at least for now. Also kudos go to ADP which yesterday accurately foretold unexpected strength in today's report.