The December employment report was oozing sex appeal, provided one isn't a bear.
Equity futures immediately jumped following the release, and with good reason. Jobs not only trounced skittish Wall Street estimates, but the overall scope of the report offers up a view of a U.S. economy that could digest a measured pace of Fed rate hikes this year. It was very important to receive such a takeaway in light of turbulent markets to start the year and recent hawkish comments from Fed vice chairman Stanley Fischer.
Here are the biggest positives, in order of importance.
1. Big upward revisions to jobs for October and November.
The hikes to prior month data clearly support the notion the U.S. economy had momentum headed into year-end. Whether it was due to warm weather spurring hiring in the construction sector, or blowout Star Wars crowds causing movie theaters to staff up, the economy was very solid. I think the upward revisions to jobs, coupled with low gas prices, partially explain why retailers such as J.C. Penney (JCP), Signet (SIG) and Francesca's (FRAN) reported pretty strong holiday sales this week. The troubles at Macy's (M) (sales miss, restructuring) and Gap (GPS) (sales miss due to horrible inventory) look rather company-specific sitting here today. As I noted recently, I would be a buyer of dollar stores, namely Dollar Tree (DLTR).
2. Manufacturing sector did not fall off a cliff.
No change in jobs here in December -- the non-durables sector actually added 14,000 jobs. In light of lingering effects of the strong dollar (that Macy's loves blaming for its earnings misses) and slowing emerging markets, a lack of job reductions in the sector hints that companies have already adjusted. In my view, that signal opens the door to fourth quarter earnings for manufacturers looking a little better than the hazy summer months. Guidance will still likely suck for many heavy equipment type producers such as Caterpillar (CAT) and Deere (DE), but at least we may not be shocked by the commentary by companies.
3. Both sexes got back to work in 2015.
The unemployment rates for men and women each fell by 60 basis points in 2015. A two-income household is better than a one-income household -- more goods and services are likely consumed each week. It raises the potential output of the economy, and that bodes well for many sectors this year.
Some will likely say the December jobs report represents a peak in growth for the next 12 months. Rattled by a shaky stock market in January and slowing growth abroad, U.S. companies can't possibly continue to add more payroll. That would be a fair argument. But, as of today, the economy is telling us the Fed was right and that it's in good shape. The market is also right in bidding up stocks on the news -- barring a disastrous weekend of news in China, the bid could continue into early next week.