Labor Growth Near Market’s Expectations

The Bureau of Labor Statistics (BLS) released their estimate of new job creations for the month of December, showing that 145,000 new hires.  This is just beneath the market’s expectations of 158,000, so the impact so far on the bond market has been muted.  As expected, retail jobs made up a strong percentage of the gains, so we can expect many of the seasonal jobs that were created to be cut sometime in the first quarter of this year.  Also, the overall average hourly earning rate came in low, which could also have been influenced by the number of lower paying seasonal jobs created to support the holiday consumer demands.  In fact, the pace of wage growth was the slowest rise since mid-2018.

The wage growth figure contained within the report is truly one of the most important measures of the future of the US economy.  Ultimately, consumer spending is what drives the pace of the economy.  As income growth slows and consumer debt continues to climb, there comes a time when consumers experience debt-fatigue where they become resentful of the debt they have accumulated and desire to eliminate it.  With home values climbing, many will choose to consolidate their debt into their home loans so they can maintain the same level of spending that got them into debt.  However, others will choose to focus on paying their debt down.  However, if their incomes don’t rise at a pace that allows them to make progress on their debt, they are forced to make lifestyle changes to live within their means.  This causes an economic slowdown and the cycle moves into a recessionary environment.

With stocks still climbing, we will maintain a locking bias.