December Jobs Report

The labor market ended 2016 on a positive note, as the U.S. economy created 156,000 jobs for the month of December. Although this was below the consensus estimate, data for prior months were revised higher by a total of 19,000 jobs with November job growth coming in above the 200,000 level.  The unemployment rate increased to 4.7%, but this was due to more workers entering the workforce with the participation rate increasing for the month.  The total measure of unemployment (the U6 rate) continued to fall, coming in at 9.2% for the month, which is the lowest since January 2008.  This past year marked the sixth consecutive year of 2 million plus jobs created, the best streak since 1999.  Job gains were seen in across all of the major categories, with only construction experiencing a slight decline for the month.

Wages posted the best annual gain since 2009, as they increased 0.39% for the month and are up nearly 3% for the year.  This will continue to be an important variable for market watchers and the Federal Reserve, given the reliance on consumer spending for GDP growth, as any stagnation or sustained decline may foreshadow an economic slowdown and/or pause in rate hikes from the Fed. Still, it is encouraging to see the positive trend in wages continue into 2017, which we believe will support economic growth for the year.

The recent economic data has not altered our opinion that the Federal Reserve will continue to raise interest rates on a gradual basis as we head into 2017.   With that said, we see the potential for volatility as the Fed may raise rates higher than expected or alter the trajectory of rate hikes given the strengthening data and uptick in inflation. With this uncertainty surrounding interest rates and the upcoming transition from Obama to Donald Trump, we have maintained our cash levels.  We will continue to monitor the current environment and deploy cash as we see opportunities to invest.