Monday Morning Outlook

Many analysts were disappointed by last Friday's job report for December, but we think the headline masks an overall report that shows continued improvement in the labor market and a possible surge in small-business start-ups and entrepreneurship.

Nonfarm payrolls rose 199,000 in December versus a consensus expected 450,000. Payroll growth was revised up a combined 141,000 in October and November, which brought total growth to a still short, but respectable, 340,000. This was the fourth time in the last five months that payrolls missed consensus expectations.

However, even as payrolls have recently fallen short, civilian employment, an alternative measure of jobs, has been rising fast, including a gain of 651,000 in December and an increase of 1.09 million in November.

Over long periods of time, and after some revisions, the two surveys closely mirror each other, but in the short run they often deviate. Reading too much into one survey over the other, and every short-term gyration in the data, is a mistake. This is especially true when we account for COVID.

The design of the civilian employment survey makes it better able to capture small-business start-ups and we think that's a potential reason for slow recent growth in payrolls: entrepreneurs are leaving established businesses (some of whom are supposed to fill out the payroll survey) and setting up their own shops (which can't fill out the payroll survey because the Labor Department doesn't know enough about them yet).

One possibility is that people who've been working from home feel less attached to large employers and are more willing to strike out on their own. Or maybe it's a concern about some big company requiring vaccines that's making some workers leave these employers. Only time will tell.