Weekly Economic Trends and Indicators
The Headlines:
On Friday, the Bureau of Labor Statistics reported that nonfarm payroll employment rose by 256,000 in December following a revised 212,000 increase in November. The unemployment rate edged down from 4.2% to 4.1%. This was the fourth time in 2024 that net new jobs increased by more than 250,000.
The Details:
Virtually all the labor market indicators in the household survey have remained essentially unchanged for the past several months. This was the seventh month in a row that the unemployment rate has been either 4.1% or 4.2%. The labor force participation rate has ranged between 62.5% and 62.7% for the past year.
The establishment survey has also been fairly consistent in the last few months, and one emerging trend has become quite clear. Payroll employment in service providing industries outpaced that in goods-producing industries by a wide margin in 2024. Since December 2023, employment in the goods-producing sector nationwide has only increased by 100,000 jobs, while employment in service-providing industries has increased by 1.7 million jobs.
As we have noted in previous months, health care and social assistance continue to add jobs at a steady pace with 69,500 net new jobs in December. Jobs in retail trade increased by 43,400. As these are seasonally adjusted figures, that indicates an above average holiday shopping season.
Manufacturing lost 13,000 jobs in December, mainly from the durable goods sector. This also continues a trend seen over the last several months in which manufacturing employment has been relatively flat.
The Context:
As we noted last week, goods inflation has been flat while service prices continue to rise at a brisk pace. The labor market data corroborates that story. Demand for manufactured goods, particularly durables, slowed significantly in 2024. At the same time, demand for services has been strong enough to support 1.7 million new jobs and keep upward pressure on prices.
The bond market’s reaction to the news was swift. The 10-year Treasury yield was 4.75% Friday morning, up 7 basis points from Thursday and up more than 17 basis points since the previous Friday. The CME FedWatch shows market participants now expecting the Federal Reserve to hold their policy interest rate constant in January with perhaps only one more decrease in 2025.
There is a precedent for this situation. Late 1994 and early 1995 saw a similar divergence in goods vs. service-producing employment. This “soft landing” after a period of rising interest rates was followed by renewed strength in manufacturing and strong growth overall for the rest of the ‘90s without much in the way of interest rate cuts. The lesson here is that the economy can thrive even with higher rates if productivity growth is strong.
Next week: International update
