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January
6
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Week In Review

Employment

Nonfarm payrolls increased by 156,000 jobs in December, slightly less than estimated. Revisions to the previous two months’ reports added an additional 19,000 jobs. The December unemployment rate rose from 4.6% to 4.7%, as the number of people looking for work outpaced the jobs added. Labor force participation rose from 62.6% to 62.7%.

Our Take

The employment report was generally as expected. Employment growth, while positive, remains lukewarm and is consistent with the tepid growth of the U.S. economy.


Hourly Earnings

Average hourly earnings rose 0.4% in December. Year-over-year, hourly earnings are up 2.9%.

Our Take

Year-over-year earnings are at their highest level since June 2009. This is welcome news. Nothing has the potential to help economic growth like consumers with money in their pockets. Increased earnings also points to inflation potential, especially when coupled with lackluster job growth. Look for the hawks at the Fed to push for increased tightening should the trend toward higher earnings continue.


Manufacturing

November durable goods orders fell 4.5%, while factory orders dropped 2.4%.

Our Take

The declines were due to the volatile transportation sector. Excluding transportation, durable goods orders increased 0.6% and factory orders rose 0.1%. On the whole, these results were better than expected and reflect an improving manufacturing sector.


FOMC Minutes

The Federal Reserve Open Market Committee (FOMC) released the minutes from its December meeting. The minutes show a hawkish tone unseen in previous meeting minutes. The committee sees greater uncertainty in the economic outlook due to unknowns in coming fiscal policy. According to the minutes, “several participants” indicated the pace of economic growth could be faster or slower than expected due to potential changes in fiscal policy. However, “almost all also indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal policies in coming years.” Still, the committee noted that downside risks remain, and the overall forecast for inflation remains largely unchanged.

Our Take

The minutes show a more hawkish consensus within the Fed. Although committed to its stated “gradual pace” of rate hikes, the committee is aware of the inflationary risks that may disrupt its timing.


Municipals

Puerto Rico welcomed a new Governor, Ricardo Rossello, who was sworn in this week. Governor Rossello immediately signed an order that called for 10 percent spending cuts for government agencies to take place before the end of the fiscal year in June. In a letter to the federal oversight board, Governor Rossello asked for a 45-day extension on a fiscal plan due on January 31 and a 75-day extension for the PROMISA provision that prevents creditors from filing lawsuits over missed payments.

Our Take

Governor Rossello moved swiftly as he begins to work on Puerto Rico’s finances. Puerto Rico continues to struggle with its heavy debt burden and slowing economy. Ordering spending cuts and asking for additional time to sort out the fiscal plan should be viewed as a positive step.