Dr. Jeffrey Roach | Chief Economist

Last Updated: 

Last Friday’s job report was a major surprise, and markets reacted accordingly. There was a bit of confusion as bonds sold off since the headline jobs number was hotter than expected. Yields on the 2-year Treasury spiked soon after the report was released at 8:30 a.m. ET. But yields did not stay up for long. More on that later.

The public and private portions of the economy added 216,000 jobs in December. Excluding the government, firms added 164,000 to payrolls.

December Payroll Report Highlights

  • The ratio of part-timers to full timers spiked in December, now above the pre-pandemic rate. Businesses typically are more inclined to hire part-timers during periods of uncertainty.
  • Payroll gains continue to be revised downward, typical for periods of slowing economic growth.
  • Government payrolls grew on average by 56,000 each month in 2023, more than double the average monthly gain the previous year.
  • Employment in leisure and hospitality grew in December but was still 1% below pre-pandemic levels.
  • Department stores cut payrolls in December by 13,000 as consumers preferred online shopping. Retail employment has shown a slight change on net since recovering in early 2022 from pandemic-related losses. Investors should take note.
  • The unemployment rate was unchanged at 3.7% and average hourly earnings grew by 4.1% from a year ago.

Federal Reserve (Fed) officials will likely be concerned about rising wages, but the recent uptick in average hourly earnings is not enough for the Fed to alter its policy plans in the coming months. This report lowers the probability of the Fed cutting in March and confirms our belief that the Fed will not begin cutting as soon as the markets expect.

Deeper Dive into Labor Market Conditions

The reason bond yields gyrated on Friday was from two contradictory reports. The Bureau of Labor Statistics (BLS) reported healthy job gains in December and then just a few hours later, a report from the Institute of Supply Management (ISM) warned that purchasing managers plan to cut jobs in December.

It took some time for markets to fully react to the mixed bag of data. Yields started to fall as investors read through the details of the nonfarm payroll report and then dropped further after the bearish ISM report.

Investors have to consider the headlines to get a better perspective on the job market.

Here are some additional items teased out from reports on the job market:

  • The share of foreign-born individuals not in the labor force rose to 16.2%, the highest ratio since the government started collecting the data in 2007, as noted in the chart below.
  • A return to work for these individuals could ease wage growth in the year ahead, something the Fed wants to witness.
  • The slowing trend was visible despite investor confusion. The three-month average job gain fell to 165,000, the lowest since 2021.
  • Markets are still reacting to the mixed bag of data.

High Ratio of Foreign-Born Not in Labor Force

Line graph depicting percentage of foreign-born workers not in a labor force from 2007–2023 as described in the preceding paragraph.

Source: LPL Research, Bureau of Labor Statistics 01/05/24


The markets got ahead of themselves with projected rate cuts early in 2024, but the jobs report reset those expectations to something more reasonable. The key to macro conditions this year is the labor market. If businesses continue to hire and pay competitive wages, the consumer will be an economic driver in 2024. In the coming months, markets will be earnestly dissecting the apparent disconnect between the soft survey data and the hard government data. This morning, the markets expect the Fed to cut rates as early as March, but that depends on how convincing the disinflation trend is to policy makers.