Nonfarm payrolls rose a seasonally adjusted 148,000 in December, the Labor Department said Friday. That brought employment gains for the year to 2.1 million, the seventh straight year of increases exceeding two million. It is only the second time on record—the other being in the 1990s—when the economy has produced jobs at that pace for that long.
The unemployment rate remained at 4.1%, matching the lowest level since December 2000 for the third straight month, with benefits hitting a widening swath of the population. The unemployment rate for blacks fell to 6.8% in December, the lowest level since records were kept starting in 1972. Unemployment for Hispanics and Latinos was 4.9%, just above a record low. Those rates remained elevated relative to December’s 3.7% unemployment rate for whites. (…)
Friday’s report showed employers added jobs in manufacturing, construction and health care in December. Employment fell in retail.
(…) average hourly earnings rose 2.5% in December from a year earlier, a similar, modest pace as maintained since early 2015. Wage gains look a bit better on a weekly basis, because Americans are working more hours. (…)
he share of Americans participating in the labor force held steady at 62.7% in December. Participation has largely moved sideways the past two years, a sign that some Americans are being drawn off the sidelines of the labor market and countering the long-run trend of aging baby boomers retiring. (…)
Labor-force participation among workers between 25- and 54-years old edged up in December to the highest rate, 81.9%, since 2010. Still, the share of those working-age adults working or seeking work is well below prerecession levels. (…)
Other facts not deemed worth mentioning by the WSJ:
- November employment was revised +24k but October was –33k for a net –9k loss.
- The stimulus from the hurricanes is evident from the 30k gain in construction jobs in December, +85k in the last 4 months or 13% of the total jobs growth.
- The momentum in employment growth is now down to +1.4% YoY.
- The weekly payrolls index (employment x hours x wages) remains healthy in the 4.0-4.5% range but wages will need to accelerate to offset waning jobs growth rates and flattening hours.
- Hourly wages remain stuck at +2.5% YoY and show little upward momentum. We shall see if tax reform and rising minimum wages change that trend in 2018.
- The Daily Shot has another way to illustrate the slowdown:
(…) In a recent report, Strategas Research listed 79 U.S. companies that publicly announced they were giving out bonuses, increasing wages or taking other employee-friendly steps since the tax cut passed into law. And minimum-wage levels were just boosted in several big states, including California and New York. (…)
U.S. Households May Rue the Binge of 2017 Americans will soon find out they have been living beyond their means.
The latest report was no exception with the addition of 79,000 net new positions. That boosted the total number of jobs created last year to 423,000, for a labour market performance that was described as “spectacular,” “impressive,” “blockbuster” and “unbelievable.” (…)
The odds of a rate hike occurring this month jumped to 80 per cent from 40 per cent, according to Bloomberg’s interest-rate prediction tool. Last year, the Bank of Canada raised its key lending rate twice, to 1 per cent, due to the strengthening economy.
The bulk of the jobs created last year was full time and the unemployment rate dropped from 5.9 per cent to 5.7 per cent, the lowest since comparable data became available in 1976, Statistics Canada said in its monthly labour survey on Friday.
Average hourly earnings rose 2.7 per cent, to $26.68, over the year, a positive development for Canadians’ paycheques. (…) In Prince Edward Island, the average hourly wage jumped 6.8 per cent over the year. British Columbia, one of the country’s strongest regional economies, recorded wage growth of 4.3 per cent, followed by Alberta at 3.2 per cent. Significant hikes in the mandatory minimum wage in Alberta and Ontario are expected to help drive pay increases this year. (…)
Canadian dollar posts three-month high as rate hike bets jump on jobs data
Warning: Statcan is notorious for mysteriously strong data and steep revisions and these latest job numbers are really bizarre. They suggest a booming economy, not happening unless productivity is skyrocketing. Did Canada really create nearly 800,000 new jobs in December if translated into U.S. equivalent numbers? Did Canada really create the U.S. equivalent of 4.3 million jobs in 2017?
The Price Gap That’s Squeezing the Auto Market The widening difference in prices between new and used cars augers pain for auto-makers profits in the U.S.
(…) The average gap between new and three-year-old vehicle prices last year was $14,200, up from $10,500 in 2010, according to information provider Edmunds.
With 12% more vehicles coming off lease in 2018 than did in 2017, this effect will only get stronger. Hence industry forecaster IHS expects another dip in U.S. unit sales this year. The same trend is at work in the lease-addicted U.K. market, where car sales fell close to 6% in 2017. (…)
Higher interest rates from the Federal Reserve matter too. Ever cheaper rates, and more recently ever longer loan terms, have allowed Americans to buy more and more expensive cars without paying much more than the usual $500 a month on average. A strong market on Wall Street for securitizing car-backed debt continued to support lending last year. But losses on these bonds are now ticking up. (…)
Overall, the estimated earnings growth rate for Q4 2017 of 10.5% today is below the estimated earnings growth rate of 11.3% at the start of the quarter (September 30). If the Energy sector were excluded, the estimated earnings growth rate for the remaining ten sectors would fall to 8.1% from 10.5%.
The estimated (year-over-year) revenue growth rate for Q4 2017 is 6.7%.
The Q4 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for all the companies in the index) dropped by 0.3% (to $34.90 from $35.00) during this period. During the past year (4 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.1%. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.2%. During the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 6.0%. In fact, the fourth quarter of 2017 marked the smallest decline in the bottom-up EPS estimate during a quarter since Q4 2010 (+0.6%).
(…) the smaller downward revisions to EPS estimates were broad-based across multiple sectors.
For the fourth quarter, 75 companies in the S&P 500 have issued negative EPS guidance and 35 companies in the S&P 500 have issued positive EPS guidance. The number of companies issuing negative EPS is below the 5-year average (80), while the number of companies issuing positive EPS guidance is above the 5-year average (28).
At the sector level, the Information Technology (36) and Consumer Discretionary (23) sectors have the highest number of companies issuing EPS guidance for the fourth quarter. This is not surprising, as these two sectors have historically had the highest number of companies providing quarterly EPS guidance on average. What is surprising, however, is the unusually high number of companies issuing positive EPS guidance in the Information Technology sector. The number of companies issuing positive EPS guidance in the Information Technology sector for Q4 2017 is 18, which is well above the 5-year average (10) for the sector.
Overall, 27 companies in the Information Technology sector have issued positive revenue guidance for the fourth quarter. This number is well above the 5-year average (16) for the sector. Of the 18 companies in this sector that have issued positive EPS guidance, 14 have also issued positive revenue guidance.
Through January 5, 19 companies in the S&P 500 Index have reported earnings for Q4 2017. Of these companies, 78.9% reported earnings above analyst expectations and 5.3% reported earnings below analyst expectations. In a typical quarter (since 1994), 64% of companies beat estimates and 21% miss estimates. Over the past four quarters, 72% of companies beat the estimates and 19% missed estimates.
In aggregate, companies are reporting earnings that are 6.3% above estimates, which is above the 3.1% long-term (since 1994) average surprise factor, and above the 4.7% surprise factor recorded over the past four quarters.
In aggregate, companies are reporting revenues that are 1.9% above estimates.
The effects of the tax reform may be beginning to filter through estimates. Q1’18 estimates are now +13.1% (+11.8% ex-Energy), up from +12.2% last week and full 2018 estimates were also notched up by 0.9% to 12.9% to $148.02. Mind you, the 2017 estimate of $131.51 is already exceeded by trailing EPS of $131.77.
Bank of America Merrill Lynch boosted its forecast for 2018 S&P 500 earnings to $153 a share, from $139, mostly as a result of the reduction in the corporate tax rate to 21% from 35%. That puts its forecast roughly in line with other estimates of the impact of the tax legislation and at the high end of consensus guesses for this year’s earnings.
BofA ML estimates that the one-time tax bill for repatriation of cash overseas could result in an additional $215 billion liability, which would be equal to $25 per share for the S&P 500 (but payable over eight years).
On the plus side, the bank estimates, S&P 500 companies have a net deferred tax liability exceeding $600 billion, which should be reduced by the lower corporate tax rate.