December’s NFP: Is It Good Enough?

Well, well, well, what a pleasant late Christmas gift! In case you missed all the action last Friday, the U.S. labor market added 200,000 jobs last December, beating forecasts of 155,000. This marked the biggest increase in over six months and brought the unemployment rate down from 8.7% to 8.5%, its lowest level in three years. As my man Larry Bird would say, “Boomshakalaka!”

In addition to this, the labor market also completed a hat trick, as it recorded improvements in two other major labor market metrics. According to the report, not only were more jobs added to the economy, but both wages and the average work week were up as well!

The data was so encouraging that it even prompted some optimistic remarks from Fed member James Bullard. According to Bullard, this unexpected surge in jobs growth makes QE3 even more unlikely!

Take note that Bullard was one of the first Fed members to suggest QE2, making him one of the more dovish members. Now, he appears to be taking a more glass-half-full stance, as he believes that the economy is gaining momentum and that robust activity may just be around the corner.

The question is, of course, whether the 200,000 increase is good enough. According to history… I’m not quite sure it is.

Following the recession of 1981-1982, the labor market was able to churn out new jobs at a rate of over 300,000 per month. Then, from 1995 to 1999, we saw 250,000 jobs added each month. Also, we have to take in to consideration that the unemployment rate at that time was already sitting at around 6.0%.

Usually, when unemployment spikes up like it has in the past 3 years, it’s normal to see rapid job growth. Unfortunately, that isn’t quite the case right now. So, putting things in perspective, the 200,000 jobs we saw this past December may not be as impressive as it sounds.

Also, we have to consider that of the 200,000 jobs that were added last month, over 42,000 were from the courier industry. The problem is that we owe this growth almost entirely to seasonal factors.

You see, these logistics companies have a habit of increasing hiring in December to cope with high holiday demand, only to erase these extra jobs soon afterwards. As a matter of fact, in December of 2010 and 2009, we saw similar behavior as the courier industry added 46,300 and 30,100 jobs respectively. But all of these jobs disappeared once the holiday season was over!

Nevertheless, the markets took this report as dollar-positive, which is quite the opposite of what we saw last Tuesday when the dollar was sold off in response to positive U.S. manufacturing data.

EUR/USD 15-minute Chart

I don’t know about you, but from where I’m standing, it doesn’t seem like it even matters whether or not the labor market’s current pace of recovery is enough to erase the 8.75 million jobs lost in the recession.

When it comes down to it, this really just gives the markets another reason to buy the dollar. With the euro zone still far from resolving its debt crisis and the U.S. beginning to show strong signs of recovery, the dollar is certainly starting to look like a very smart bet for now.