Jan Hatzius on December Jobs Report: Not Strong, but Unemployment Rate Improved

December Jobs Report Analysis

• 📉 The December jobs report was not considered strong, with only 50,000 jobs created, slightly below expectations.
• ⚠️ Downward revisions to previous months suggest a weaker trend, with an average of only 15,000 jobs created per month over the last six months.
• 📊 The unemployment rate showed improvement, with a monthly drop and a downward revision, making the recent increase less concerning.

Federal Reserve's Focus

• 🎯 The Federal Reserve is likely to focus on the balance between demand and supply in the labor market.
• 🧐 This focus is particularly relevant given the uncertainty surrounding the break-even rate of payroll growth.

Productivity and Economic Growth

• 🚀 There's a noticeable acceleration in productivity growth over the last five years compared to the previous 10-15 years.
• 📈 This increased productivity suggests a higher economic speed limit.
• ❓ The reason for strong economic and productivity growth not translating into a boom in job creation remains a subject of discussion, with potential factors including AI, full employment, and immigration policies.

Inflation Outlook (CPI)

• 💡 In 2026, the outlook is disinflationary, with core inflation expected to move closer to the 2% target.
• ⚖️ The sideways move in core inflation in 2025 was partly due to tariff pass-through, estimated at 50 basis points.
• 📉 Underlying inflation was still decreasing, with wage growth and rent inflation trending down.
• 🎯 By year-end, inflation is projected to be around 2.1-2.2%.
• ⏳ It is estimated that 50 basis points of tariff impact have cycled through, with an additional 30-40 basis points expected.