On the December Jobs Report, and Services PMI

An unexpected sharp drop in the ISM services PMI, pointing to slight contraction after pointing to strong growth last month, reinforces our call for a one-and-done rate hike at the February FOMC. It’s a shocking recession warning from a forward-looking indicator we respect. But 11 of 17 sectors showed growth, and the 6 that showed contraction were concentrated in housing. And it is an outlier among macro datapoints, including this morning’s jobs report with 223,000 net payrolls. That’s the slowest growth this year, and wage growth was the slowest except for an anomalous February. But payroll gains were twice the growth of the eligible population, and the labor force grew by 439,000 workers to a new all-time high, more than all of whom were employed – bringing the unemployment rate back to precisely where it was before the pandemic. The labor force shows no weakness, and none of the tightness the Fed worries about.