Employment Report: January 6, 2006: Mark Thoma Tries to Provide Perspective
Employment Report: January 6, 2006: Tim Duy Looks at the Fed

Employment Report: January 6, 2006: Economist Forecasters' Immediate Reactions

Economic forecasters' immediate reactions to the Employment Report:

WSJ.com - Economists React: January 6, 2006 10:02 a.m.: Hiring rose in December, but only modestly, as employers added 108,000 jobs to nonfarm payrolls -- about half the increase many forecasters had been expecting. However, last month's weak hiring totals came off of a much higher base, as the Labor Department raised its November reading on payrolls to show growth of 305,000 jobs during the month instead of the earlier reported 215,000 jobs increase. Meanwhile, December's unemployment rate fell to 4.9% from 5% in November. For all of 2005, the economy added around two million jobs -- a solid amount and about the same as last year. The unemployment rate averaged 5.1% last year, an improvement from the 5.5% average registered in 2004. What do the numbers reveal about the state of the economy? Here's a sampling of economists' opinions:

This report is very consistent with the status quo: payrolls are still growing by about 200,000 a month, i.e. more than 50,000 faster than would be consistent with a stable jobless rate. Thus, the unemployment rate should remain on a downtrend. Finally, the new development is that, between the data and the anecdotes, there are increasing signs that wage gains may be picking up. This view of the world is very inconsistent with the consensus projection that the economy is cooling and the Fed is on the cusp of stopping. -- Stephen Stanley, RBS Greenwich Capital

These data continue a recent saw-tooth pattern, with November's strength obviously a rebound from hurricane-suppressed September/October levels, and December's softness probably at least in part due to some payback from overly strong November results. Moreover, the jobs plentiful component of the Conference Board's consumer confidence index points to labor market strength, as does the underlying level of initial unemployment claims. We expect better job growth in the future, but for the time being today's report feeds market sentiment that is increasingly tilted toward the feeling that the path for Fed tightening is "one and done". -- Joshua Shapiro, MFR Inc.

The slow tightening in the labor market is gradually boosting hourly earnings but the absence of any bargaining power and a flat workweek is keeping that gain relatively modest. The flat workweek indicates that businesses remain very cautious. As interest rates rise and it becomes more difficult to extract home equity, gains in hourly earnings will become increasingly important in sustaining consumer spending. -- Steven Wood, Insight Economics

Construction employment declines may reflect seasonal difficulties in counting the data, but the Bureau of Labor and Statistics claimed that weather was not a factor behind the sluggish 108,000 non-farm advance. Weak Retail employment (-16K) was concentrated among discounters and department stores and reflects caution heading into the Christmas season. Both construction and retail payrolls have a good chance of reversing in Q1 of 2006. -- Stephen Gallagher, Societe Generale

Employment indicators in December were inconsistent, in our judgment, with a payroll gain of only 108,000. In addition, the sharp upward revision to November serves as a reminder that the last word on job creation has yet to be heard. However, putting payrolls aside, the Phillips-Curve mix of a falling unemployment rate and rising wage increases is not a comfortable one from the Fed's perspective. We look for these trends to continue in 2006 and the Fed to respond by raising rates gradually to 5%. -- John Ryding, Conrad DeQuadros, Elena Volovelsky, of Bear Stearns

It was a year of big bonuses and hefty raises for highly skilled professionals and executives but slim pickings for the ordinary working Joe. Such tepid wage growth is particularly disappointing given the strong productivity advances posted by the private business sector over the last year. Moderate wage growth and strong productivity growth should soon convince the Fed to end its cycle of interest rate increases soon. The Fed will increase the federal funds rate to 4.5 percent on January 31 but increases beyond 4.5 percent are less likely. -- Peter Morici, University of Maryland

An important reason that job growth in December was much smaller than we had expected is that the jobs in the construction industry fell by 9,000, the first monthly drop since February 2004. Our forecast, like many others, had assumed that the rebuilding activity in the hurricane afflicted Southern states would attract a lot of construction workers from the North who would normally be facing winter time furloughs. That appears not to be happening just yet but the severe cold that spanned much of the nation during the first half of December may have forced builders to cut back on-site activity. If the weather cooperates, we still expect job growth in the construction trades to be above average in the coming few months. -- David Resler and Gerald Zukowski, Nomura Securities International