Not Goldilocks

Not long after Friday’s Employment Report multiple analysts and commentators were calling it a “goldilocks” report, by which they meant it showed that the economy was neither “too hot” nor “too cold,” but instead, “just right.”

In turn, the theory goes, the Federal Reserve could stop raising short-term rates earlier and at a lower peak than previously expected, inflation would continue to cool, and the economy could pull-off an elusive “soft landing.”

The biggest headlines from the Employment Report were definitely good news. Nonfarm payrolls rose 223,000 in December, beating the consensus expected 203,000. Meanwhile, civilian employment, an alternative (although volatile) measure of jobs that includes small-business start-ups, surged 717,000. Rapid job creation helped push the unemployment rate down to 3.5%, tying the lowest level since Joe Namath was a reigning Super Bowl champion. (If you’re a Millennial or Gen Z, yes, that’s the same guy in the Medicare commercials.)

But, behind the headlines, the data were not as good. Temporary help service jobs (temps) fell 35,000 in December, the fifth straight monthly decline, to a level of temp jobs below a year ago. Why are these jobs important to watch? Because, when businesses face increased demand, the quickest way to respond is hiring temporary help. And the same thing happens in the opposite direction.

Meanwhile, the total number of hours worked in the private-sector ticked down 0.1% in December, the second consecutive monthly decline. Even though payrolls were up, total hours worked data show less work was done. Putting it all together, this is the equivalent of losing 125,000 jobs in December, not gaining jobs. Fewer temporary workers and fewer hours worked suggest some weakness in the job market. What this means is that businesses are still hiring, but their workers have less to do.