US NFP: Pace of job growth and labor costs consistent with a more modest FOMC - Wells Fargo

According to analysts from Wells Fargo, today’s US employment numbers are consistent with a projection for 2016 of slower job gains and rising unit labor costs.

Key Quotes:

“Nonfarm employment rose 151,000 in December—a downshift consistent with slower overall GDP and industrial production growth in 2016 compared to 2015. We have emphasized the divergence between the production and services sides of the economy over the past six months and we can see that divergence in today’s numbers.”

“For 2013 and 2014, the employment cost index rose roughly 2 percent, but the trend has been clearly upward. Going forward, we anticipate this measure of labor costs will pick up, thereby signaling rising labor cost pressures, especially since productivity gains remain very modest at best. For the economy, this will put further pressure on corporate profit growth and further limit companies’ willingness to invest and hire.”

“With more modest job gains and higher wage growth pushing inflation higher, the balance in real disposable income is tilting towards lower real income growth and slower real consumer spending in 2016 relative to 2015.”

“Bottom line, the pace of job growth and labor costs are consistent with a more modest pace of FOMC moves in 2016 and certainly not four rate hikes in 2016. We did not expect an FOMC move in March and possibly not in June as well. We retain that view. Moreover, the more modest job gains continue to signal an economy that is drifting on thin ice as we indicated with our GDP report last week.”