KNOWLEDGE CENTER

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Welcome, my name is Sean Simko. I am Managing Director of SEI Fixed Income Portfolio Management. Today’s commentary focuses on the release of December’s employment data, including the nonfarm payroll number and the market’s initial reaction.

December’s nonfarm payroll number came in above expectations at 200,000 jobs created. The consensus was for an addition of 155,000 jobs. The nonfarm number was revised higher by 5,000 after the prior day’s release of the ADP report, which also showed increased hiring activity.

It is no secret that hiring in the U.S. is increasing. However, it needs to accelerate even more in order to help move the unemployment rate lower and keep consumer confidence elevated. Demand from the holiday season should help boost corporate sales and reduce inventories. This could spur additional hiring in the coming weeks.

The creation of 200,000 jobs in December brought the total amount of jobs added by companies to 1.64 million for the year. Private payrolls added 212,000 after a downwardly revised November gain of 120,000. The encouraging news was the overall growth within sectors. Factory payrolls gained by 23,000, and retail trade climbed by 27,900. The transportation industry increased by 50,200, and construction added 12,000. Government payrolls decreased by 12,000 as local government reduced headcount. The unemployment rate fell to 8.5%, which is the lowest level since March 2009.

December’s ADP report showed the creation of 325,000 jobs and was welcomed by investors. This was the largest gain for 2011, and well above the estimate. Weekly jobless claims have been stronger recently, reflecting optimism within the sector. Excluding any revisions, all weeks in December saw new jobless claims come in below the 400,000 level, signaling that the labor market continued to gain momentum through year-end. Investor sentiment should improve as this data is coupled with stronger job creation.

The Treasury market continued its recent move lower in price prior to the issue of the payroll data, but the sector reversed course after its release. The curve remained unchanged, with the two-year yield hovering at 26 basis points. The 10-year was a little higher in price, yielding 1.99%. The 30-year outperformed the curve with a 3.08% yield.

December’s strong labor data was a positive sign for the U.S. economy. Job creation is solid and is expected to trend higher; we feel the labor market should continue to improve as we move through the first quarter of 2012.

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Thank you.