On the December Jobs Report

A beat for payrolls at 216,000, supported by downward revisions to prior months. The “household survey” shows a stark contradiction with a contraction of 683,000 jobs, but this just unwinds last month’s stark contradiction in the opposite direction. Supported by a wide variety of other labor market data, the payrolls number is about right. Revisions to seasonal adjustment factors in the “household” data are inconsequential. The Fed may focus on December’s large gain in average hourly earnings, but this is contradicted by the sharp drop in jobs vacancies to below the pre-pandemic trend. At this point the Fed is likely focused exclusively on inflation data, which it already openly admits has mostly come back into line. We stand by our call for ongoing disinflation, the emergence of deflation, and the first rate cut at the March FOMC.