Flash Macro: U.S. Jobs Report

How are we thinking about the December U.S. jobs report?

The December nonfarm payrolls report showed what continues to be a distinctly robust trend in U.S. job and wage growth. Headline employment came in at +216k, above consensus of +175k, up from +173k in November (downwardly revised). Maybe even more important, average hourly earnings increased by +4.1%y/y, well above consensus of 3.9%, making the first monthly increase in this metric in six months. Beneath the surface, other details in the report were less universally strong/hawkish in their implications, but were not enough to offset the strong signal from headline data, as well as other ‘real-time’ metrics of U.S. labor market health (e.g., initial unemployment claims remain subdued). See below for full details.

Bigger picture, we enter 2024 with a more optimistic view on growth versus the consensus (we see GDP at +1.5%  this year, versus consensus of +1.3%). Key to our thinking is that the most cyclical areas of the economy have already bottomed, while fiscal policy remains a powerful offset to monetary tightening. We think too many people are locked into the paradigm that valuations are lofty, and the U.S. economy is topping out and headed for a hard landing. We do not see it this way.

Where are we focused? We see a constructive backdrop for markets in the year ahead but think this is still the time to maintain discipline on leverage, duration, margins, and creditworthiness. Against this backdrop, we like investment linked to operational improvement (including corporate carve-outs), our major investment themes (including Energy Transition, Security of Everything, and Productivity), and non-control positions with inherent downside protection (i.e., staying higher in the capital structure and owning some collateral).