There was a lot of important information on the U.S. economy released this week, but the biggest data point is without a doubt the latest monthly job report from the Bureau of Labor Statistics (BLS) out this morning. Indeed, total nonfarm employment in America jumped by 312,000 payrolls in December, the largest gain since February and the biggest beat relative to expectations in nearly a decade. A seasonal uptick in hiring clearly contributed to December’s outsized payrolls gain, but there were also sharp upward revisions to the prior two reports. That helped lift the less-volatile 3-month average pace of job creation to 254,000 in December, the highest reading since September 2016. Moreover, for all of 2018 an average of 220,000 payrolls were added to the economy every month, in turn making it the best year for job creation since 2015.
At the same time, the official unemployment rate (U-3) rose to 3.9 percent in December, and the labor force participation rate climbed to 63.1 percent. Together this suggests that the apparent rise in joblessness is actually an encouraging sign of Americans’ greater confidence in the labor market and growth in the number of people actively seeking work. This includes previously discouraged workers who had given up on the job search, as well as more people voluntarily leaving their current jobs for better employment opportunities. Going forward, hiring should gradually pull back from these elevated levels as excess slack is removed from the labor market. These tightening conditions will put upward pressure on employee compensation as businesses compete for talent. Signs of this are already showing up, e.g. average hourly earnings during the past twelve months rose by 3.2 percent, the fastest pace of annual wage growth recorded since 2009. Even larger income gains, though, may be needed to sustain consumer spending and help this current economic expansion become the longest in U.S. history.
Sources: Econoday, U.S. DoL, Bloomberg, Twitter, FRBSL
Post author: Charles Couch