On the December Jobs Report

This morning’s big upside surprise in jobs shouldn’t have been a surprise – it’s been clear all week from early labor market indicators such as ADP payrolls and Challenger layoffs. We don’t see a lot of hidden weakness in the internals – and warm weather doesn’t explain it. The worst element is the slight downtick in average hourly earnings, the element most closely watched by the Fed, perhaps explaining why rate hike expectations barely budged following the data. More broadly, while this positive surprise has been brewing this week, markets have been very weak – implying that they are looking forward to risks not captured in backward-looking labor statistics.