CIO Notebook: Closing Out ‘23 With Better-than-Expected December Payrolls

January 05, 2024

December’s non-farm payrolls came in above expectations driven by gains in government, health care, social assistance, and construction

December’s non-farm payrolls release this morning came in above expectations at +216k versus consensus of +175k, driven by gains in government, health care, social assistance and, interestingly given the colder weather, construction. Leisure and hospitality, which had driven a meaningful portion of job gains in the first half of 2023, remain solid but stable, indicating perhaps that the supply-demand imbalance in those industries is moving back toward equilibrium. Transportation and warehousing jobs were lower in the month, possibly reflecting a continued decline in goods demand, which we have seen flowing through to goods inflation data.

Hours worked ticked back down to 34.3 and average hourly wages rose by +0.4% month-over-month and +4.1% year-over-year—both higher than expectations of +0.3% and +3.9%, respectively. The unemployment rate remained steady at 3.7% versus expectations of 3.8%, but that was primarily due to the decline in the participation rate from 62.8% to 62.5%. In terms of the narrative, this decline in the participation rate, coupled with the uptick in average hourly wages, is potentially the most disruptive as the Federal Reserve (Fed) views a return to the pre-pandemic participation rate above 63% as critical to dampen upward pressure on wages (and end prices).

While this month’s print came in higher than anticipated—although admittedly the whisper numbers were almost all for a reading above consensus—both October and November non-farm payrolls were revised lower, by -45k and -26k, respectively. However, even with these revisions, we believe that evidence of labor market demand continuing to eclipse supply as represented by wage growth gains is likely to weigh on the Fed’s decision to effect more accommodative monetary policy.

In terms of market reaction, according to the CME FedWatch Tool, the probability of a rate cut in March moved from 73.4% to 53.6% over the last six days; this repricing is being felt by both equity and bond investors alike. As of yesterday’s close, the S&P 500 Index was down -1.7% to start the year, while the 10-Year Treasury yield has pushed over the 4% mark after closing the year at 3.87%.

While the continued upward pressure on wages is certainly complicating, we do not believe that this will result in a meaningful change in the overall trend: inflation is moving lower and the Fed and other central banks will at some point respond to lower prices by cutting interest rates. However, economic data is likely to play a pivotal role in the timing of those policy shifts. As a result, we anticipate that the dissection and digestion of these data releases are likely to continue to move markets for the foreseeable future.


This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This material is general in nature and is not directed to any category of investors and should not be regarded as individualized, a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types. Diversification does not guarantee profit or protect against loss in declining markets. Investing entails risks, including possible loss of principal. Investments in private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in private equity are intended for sophisticated investors only. Unless otherwise indicated, returns shown reflect reinvestment of dividends and distributions. Indexes are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.

Portfolio positioning views expressed herein are those of Neuberger Berman’s Private Wealth Investment Group, which may include those of the Neuberger Berman’s Asset Allocation Committee. Asset allocation and positioning views are based on a hypothetical reference portfolio. The Private Wealth Investment Group analyzes market and economic indicators to develop asset allocation strategies. The Private Wealth Investment Group works in partnership with the Office of the CIO. The Private Wealth Investment Group also consults regularly with portfolio managers and investment officers across the firm. The Asset Allocation Committee is comprised of professionals across multiple disciplines, including equity and fixed income strategists and portfolio managers. The Asset Allocation Committee reviews and sets long-term asset allocation models, establishes preferred near-term tactical asset class allocations and, upon request, reviews asset allocations for large diversified mandates. Asset Allocation Committee members are polled on asset classes and the positional views are representative of an Asset Allocation Committee consensus. The views of the Asset Allocation Committee and the Private Wealth Investment Group may not reflect the views of the firm as a whole and Neuberger Berman advisers and portfolio managers may take contrary positions to the views of the Asset Allocation Committee or the Private Wealth Investment Group. The Asset Allocation Committee and the Private Wealth Investment Group views do not constitute a prediction or projection of future events or future market behavior. Defensive positioning generally means an underweight bias on allocations to risk assets such as equities and alternatives. Positioning views may change over time without notice and actual client positioning may vary significantly. Discussion of yield characteristics or total returns of different asset classes are for illustrative purposes only. Such asset classes, such as equities and fixed income, may have significantly different overall risk-return characteristics which should be consider before investing.

The information in this material may contain projections, market outlooks or other forward-looking statements regarding future events, including economic, asset class and market outlooks or expectations, and is only current as of the date indicated. There is no assurance that such events, outlook and expectations will be achieved, and actual results may be significantly different than that shown here. The duration and characteristics of past market/economic cycles and market behavior, including any bull/bear markets, is no indication of the duration and characteristics of any current or future be market/economic cycles or behavior. Information on historical observations about asset or sub-asset classes is not intended to represent or predict future events. Historical trends do not imply, forecast or guarantee future results. Information is based on current views and market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.

Discussions of any specific sectors and companies are for informational purposes only. This material is not intended as a formal research report and should not be relied upon as a basis for making an investment decision. The firm, its employees and advisory accounts may hold positions of any companies discussed. Nothing herein constitutes a recommendation to buy, sell or hold a security. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. Investment decisions and the appropriateness of this content should be made based on an investor's individual objectives and circumstances and in consultation with his or her advisors.

Neuberger Berman Investment Advisers LLC is a registered investment adviser.

The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC

© 2024 Neuberger Berman Group LLC. All rights reserved.