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 148K payrolls in December, the smallest gain since September and significantly worse than anticipated. However, this was still the 87th consecutive month of job growth in America, the longest streak in history, and a total of 2.06 million payrolls were added to the economy last year, slightly more than many analysts had forecast at the start of 2017. Further, there was a net downward revision of 9K payrolls to the October and November figures, but payrolls growth still averaged 204K during the past three months. That is comfortably above Federal Reserve (Fed) officials’ estimates for what is needed to keep up with U.S. population growth.
As for joblessness in America, the official unemployment rate (U-3) held at 4.1 percent in December, while the underemployment rate (U-6) edged higher to 8.1 percent, both near the best levels of the current business cycle. Elsewhere, the labor force participation rate ended the year at 62.7 percent. That is little-changed from the start of 2017 and therefore encouraging given the growing number of Baby Boomers that have retired (exited the workforce). With respect to wage growth, average hourly earnings rose by 0.3 percent in December, in line with expectations and a welcome improvement from November’s downward-revised 0.1 percent gain. On a year-over-year basis, hourly wages ended December up 2.5 percent, with most of the gains seen in the financial, leisure & hospitality, transportation, IT, and construction sectors. Annual wage growth is near the best level of the recovery, but there is still a lot of room left for improvement. Excess slack in the labor market could be a part of the problem, as evidenced by the employment-to-population ratio for prime-age workers, which hit a recovery high in December but is still 0.6 percent below the 1990-2008 average. Regardless, this job report overall was mediocre at worst, and should therefore still allow the Fed to justify additional interest-rate hikes in 2018.
Sources: U.S. DoL, Twitter, Bloomberg, Nordea Markets, Macrobond, FRBSLPost author: Charles Couch