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 rose by 156K payrolls in December, below the +175K gain economists had expected and the smallest monthly increase since October. There were mixed revisions to the November (+26K) and October (-7K) figures, which altogether resulted in a 3-month (less-volatile) average payrolls gain of +165K. That is one of the weaker readings of the past few years but still an overall healthy pace of job creation. Similarly, an average of 180K payrolls were added to the economy each month in 2016, the softest reading since 2011 but still well above many Federal Reserve (Fed) officials’ estimates for what is needed to keep up with U.S. population growth. In fact, this average is historically still quite high, and should therefore continue to drift lower over time as the economy nears full employment. This can already be seen in annual payrolls growth, which has steadily slowed over the past two years. However, there are still more than 2 million jobs being added to the economy on a yearly basis, and December’s headline gain was the 75th consecutive month of net job creation in this country, the longest such streak in U.S. history.
As for joblessness in America, the official unemployment rate (U-3) rose to 4.7 percent in December but this was likely related to the slight increase in the labor force participation rate, i.e. more Americans reentering the workforce due to greater confidence in their employment prospects. Moreover, the underemployment rate (U-6), a broader measure of joblessness, slid to 9.2 percent last month, a new post-crisis low. Of course it is worth mentioning that U-6 is still somewhat elevated compared to pre-recession levels, and implies that millions of Americans who would prefer full-time employment remain stuck with part-time work. On the bright side, average hourly earnings rose by 0.4 percent in December, better than expected and a nice turnaround from November’s 0.1 percent decline. There was a small decrease in the average workweek but the wage gain last month was enough to lift the annual pace of growth in hourly earnings to 2.9 percent, the best reading since June 2009. This combination of higher wages, solid payrolls growth, and an uptick in participation is about as strong a job report as we can hope for this late in the economic cycle, and provides more evidence of an overall tightening labor market. Below are a few more highlights from the December report:
- Flows into employment remain strong, and retiring Baby Boomers continue to drive flows from employed to not in labor force.
- The percentage of Americans ages 25 to 34 who are not working fell below 22 percent for the first time since September 2008.
- The labor force participation rate for young women continues to rise rapidly.
- The percentage of young women not working is close to lowest level since 2001 but nonemployment among their male counterparts remains elevated.
- The teen unemployment rate dropped under 15 percent for the first time since the recession.
- The black unemployment rate dropped to the lowest level since August 2007.
- The unemployment rate in the mining, quarrying, and oil/gas extraction arena has plunged from 11.5 percent to 3.7 percent over the past six months, helped by the sharp rebound in energy prices.
- Job growth remained modest in higher paying sectors like financial activities, professional/business services, and manufacturing last month.
Sources: Econoday, Bloomberg, Twitter, FRBSLPost author: Charles Couch