The Bureau of Labor and Statistics released monthly employment data in early January. In general, the news is good with headlines items favorable with some underlying data one might consider concerning.
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To start things off, headline numbers of +252k of nonfarm payroll growth and an unemployment rate that fell to 5.6% were both better than expectations (+240k and 5.7% respectively).
There was also a nice decline in the unemployment rate that includes underemployed individuals that fell from 11.4% to 11.2%.
In addition to December numbers, there were positive revisions to job growth in the previous two months with 18k jobs added to October’s total and 32k added to November.
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December results represented the 11th straight month of job growth over 200k, a 6-month average of +258k, and the strongest calendar-year growth in jobs since 1999.
For the month of December, job growth was led by Professional and Business Services (+52k), Construction (+48k), Food Services & Drinking (+44k) and Healthcare (+34k).
Beneath the headlines were less inspiring items. It was reported that 300k people left the labor force which had a positive effect on the unemployment rate calculation.
This exit of workers also led to a decline in the labor force participation rate to 62.7%, a 37 year low.
Wage growth, an area under great attention as an indicator labor market strength, was weak with average hourly earnings falling by $.05 and represents annual growth of only 1.7%.
Another key indicator, average workweek hours, was unchanged at 34.6 hours.
As mentioned, the overall report was good but the wage growth number have many wondering why strength in job growth is not translating into wage growth.
Economists have pointed to the continued slack in the labor force (the labor force participation rate supports this), global labor and technology alternatives, and cases where businesses are having a hard time finding qualified workers.
Despite this, the numbers support current expectations of the Fed starting to increase short-term rates around June of this year in my opinion.
Nevertheless, the nature of wage growth has to have Fed officials concerned. I also wonder how oil prices will work its way into the situation.
There could be rapid layoffs in oil producing states that have been the source of much of this country’s job growth.
Over time, I believe lower energy prices will be a net positive but the net positives may take time to develop.
Given this, we could see some interesting developments in future employment statistics. At this time, equity markets are weak with some saying there is a focus on wage growth.
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