December's employment report produced a below-trend month across the board. The employment trend is still healthy, but earnings are losing momentum and the workweek shortened in Q4.
December's 145 thousand payroll increase is weaker than expected, if not significantly so, and the slowest pace of growth since May. Net revisions were negative at -14,000. November's revised 256 thousand and October's revised 152 thousand were both close to 200 thousand if excluding the impact of a strike at GM in October. August and September were both close to 200 thousand as well.
The 3-month average of 184 thousand is similar to the 6-month average at 189 thousand, but it appears that the recent surprise revival in trend (the 3-month and 6-month averages had both fallen below 140 thousand in May) is fading. The recent revival in trend owed a lot to an acceleration in retail and leisure/hospitality payrolls after both of those sectors were weak earlier in the year.
December's payroll number actually looks weak when excluding an unusually strong 41,000 increase in retail and a more typical 40,000 rise in leisure/hospitality. The retail gain is a positive signal for holiday shopping, but the gains may be temporary.
Construction saw a positive month with an increase of 20,000 payrolls, backing positive hints from some housing sector surveys, but elsewhere, the payroll numbers are quite soft. Manufacturing fell by 12,000 and private services are weak outside of gains in the two sectors mentioned above.
Average hourly earnings rose by only 0.1% in December, with revisions a net neutral—October's number was revised down and November's print was revised up. At 2.9%, y/y growth is at its lowest level since July 2018. The fact that low-paying jobs—retail and leisure/hospitality—have been inflating payroll growth may partly explain this loss of momentum.
Perhaps the most significant feature of the weak data was the workweek at 34.3 hours, with October and November also revised down to 34.3 from 34.4. This means there was a slowdown in the workweek Q4, as Q3 saw two months at 34.4 and one at 34.3.
Aggregate hours worked increased by only 1.1% annualized in Q4, similar to a 1.0% outcome in Q3. We expected a rise of a little more than 2.0%, assuming the workweek persisted at 34.4 hours.
Unemployment was stable at 3.5%, as expected. Unusually, historic revisions to the household survey did not see a single monthly rate revised in 2019.