Too Early To Worry About Employment Being Too Strong

by: William Trent, CFA

Friday's surprisingly positive employment news led Wall Street to speculate that the economy was still too strong for the Fed to contemplate a rate cut. As Yahoo! News reported,

The U.S. economy created a surprisingly strong 167,000 jobs in December and hourly wages showed the sharpest rise in eight months, the Labor Department said in a report that suggested the economy was still too strong to prompt the Federal Reserve to cut interest rates. "The employment report was the big news," said Neil Wolfson, president of Investment Management at Wilmington Trust in New York. “The economy is not weakening the way some people had forecast and therefore the Fed is unlikely to be cutting rates in the short term.”

We think it is still too early to worry about employment being too strong. While the year/year growth in jobs (on a non-seasonally adjusted basis since December was in winter for both years) was slightly better than in November, it isn’t exactly breaking out of its downtrend either.

employment

It’s definitely looking less sickly than it was in late summer, but we’ll reserve judgment until it breaks above 1.5% growth or below 1.3% year/year.