On the December Jobs Report

A miss on payrolls is on the low end of the error-range we have come to expect since the 2016 election – contemporaneous labor market indicators imply that the real number was in fact a beat. Another sluggish month of average hourly earnings growth – only even as good as it seems because of a downward revision to last month’s – and no change in the unemployment rate, give the Fed nothing to get excited about. The seemingly low unemployment rate continues to give a false impression about the remaining capacity in the labor force. We think structural features of today’s economy call for a lower-than-historical unemployment rate, and that demographics imply 3.1 million payrolls could be added before we hit full employment.