December Jobs Report Blows Past Expectations
December's Jobs Report blew past expectations to show more than 300,000 jobs created.
So far this year, the word governing the jobs market has been “inconsistent.” In January and February we saw numbers that, notwithstanding the fact that most of the nation was undergoing a cold and harsh winter, were fairly strong, suggesting that 2018 could be a good year for jobs growth notwithstanding the fact that we are rather late in the recovery from the Great Recession and nearing a point in the jobs market where we’ve typically seen equilibrium in the past. The following two months, though, March and April, turned disappointing as net jobs growth missed even modest target numbers by wide margins, The job situation improved slightly in May, but even those numbers were about the same as what we saw for most of the final two years of the Obama Administration, numbers which are more consistent with a mature recovery reaching what economists refer to as “full employment.” The same was true for the report for June which was somewhat better than where expectations had been set. The July Report, though, fell short of expectations, and the August report was slightly ahead of expectations. Then, in September’s jobs report, we saw jobs growth fall below expectations while the top-line unemployment number dipped to 3.7%, level we have not seen in about 50 years. October saw another disappointing month as new job creation fell below expectations, but there was something of an uptick in November ahead of the holidays.
Rather than the jobs number, though, most analysts have been keeping an eye on wage growth, which has remained stubbornly lagging for the better part of the past two or three years. At an annualized rate, for example, wages have been growing at roughly 2.7%, which is slowly starting to be not enough to keep up with an inflation rate that has quietly increased as the economy has heated up. With the pool of eligible worker shrinking somewhat and unemployment at rates that are generally considered to be “full employment,” there should be more movement on wages as employers seek to attract workers. So far, though, that hasn’t been happening. This has left some analysts wondering if, thanks to increases in worker productivity and investments in automation, employers are no longer seeing the need to raise wages, something that could have a real impact on workers if prices continue to rise. This is especially important given the fact that other economic statistics are showing that inflation at the wholesale and consumer levels was starting to increase at a faster rate than we’ve seen in the past and that, without more rapid wage growth, Americans would effectively see real wages decline in terms of their purchasing power.
In any case, heading into today’s release of the November Jobs Report, the expectation of analysts and traders was that we would see roughly 180,000 new jobs, with the U-3 Unemployment Rate staying at the 3.7% rate it hit earlier in the year. As it turns out, the actual number was substantially higher, and wage growth was also higher than expected:
Total nonfarm payroll employment increased by 312,000 in December, and the unemployment rate rose to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, food services and drinking places, construction, manufacturing, and retail trade.
The unemployment rate rose by 0.2 percentage point to 3.9 percent in December, and the number of unemployed persons increased by 276,000 to 6.3 million. A year earlier, the jobless rate was 4.1 percent, and the number of unemployed persons was 6.6 million. (See table A-1.)
Among the major worker groups, the unemployment rates for adult men (3.6 percent) and Blacks (6.6 percent) increased in December. The jobless rates for adult women (3.5 percent), teenagers (12.5 percent), Whites (3.4 percent), Asians (3.3 percent), and Hispanics (4.4 percent) showed little or no change over the month. (See tables A-1, A-2, and A-3.)
Among the unemployed, the number of job leavers increased by 142,000 in December to 839,000. Job leavers are unemployed persons who quit or otherwise voluntarily left their previous job and immediately began looking for new employment. (See table A-11.)
In December, the number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.3 million and accounted for 20.5 percent of the unemployed. Over the year, the number of long-term unemployed was down by 205,000. (See table A-12.)
The labor force participation rate, at 63.1 percent, changed little in December, and the employment-population ratio was 60.6 percent for the third consecutive month. Both measures were up by 0.4 percentage point over the year. (See table A-1.)
Total nonfarm payroll employment increased by 312,000 in December. Job gains occurred in health care, food services and drinking places, construction, manufacturing, and retail trade. Payroll employment rose by 2.6 million in 2018, compared with a gain of 2.2 million in 2017. (See table B-1.)
Employment in health care rose by 50,000 in December. Within the industry, job gains occurred in ambulatory health care services (+38,000) and hospitals (+7,000). Health care added 346,000 jobs in 2018, more than the gain of 284,000 jobs in 2017.
In December, employment in food services and drinking places increased by 41,000. Over the year, the industry added 235,000 jobs, similar to the increase in 2017 (+261,000).
Construction employment rose by 38,000 in December, with job gains in heavy and civil engineering construction (+16,000) and nonresidential specialty trade construction (+16,000). The construction industry added 280,000 jobs in 2018, compared with an increase of 250,000 in 2017.
Manufacturing added 32,000 jobs in December. Most of the gain occurred in the durable goods component (+19,000), with job growth in fabricated metal products (+7,000) and in computer and electronic products (+4,000). Employment in the nondurable goods component also increased over the month (+13,000). Manufacturing employment increased by 284,000 over the year, with about three-fourths of the gain in durable goods industries. Manufacturing had added 207,000 jobs in 2017.
In December, employment in retail trade rose by 24,000. Job growth occurred in general merchandise stores (+15,000) and automobile dealers (+6,000). These gains were partially offset by a job loss in sporting goods, hobby, book, and music stores (-9,000). Retail
trade employment increased by 92,000 in 2018, after little net change in 2017 (-29,000).
Over the month, employment in professional and business services continued to trend up (+43,000). The industry added 583,000 jobs in 2018, outpacing the 458,000 jobs added in 2017.
Employment in other major industries, including mining, wholesale trade, transportation and warehousing, information, financial activities, and government, showed little change over the month.
In addition to the numbers above, the Bureau of Labor Statistics reported that total nonfarm payroll employment for October was revised upward .from +237,000 to +274,000 and the number for November was revised upward from +155,000 to +176,000. These revisions made for a net upward revision of +58,000 for those two months. Combined with this month’s jobs numbers, this puts the average jobs growth for the past three months at +254,000 net jobs created per month, a rather significant increase from where the three-month average stood last month. So far in 2018, we’ve seen a total of 2,094,000 new jobs created in 2018 as a whole for an average of +174,500 net new jobs created per month since the start of the year, which is a slight decrease from where we stood last month. Combined with the final jobs numbers for 2017, this means we’ve seen a total of 3,479,000 new jobs created since January 1, 2017, a period that has largely coincided with Donald Trump’s tenure as President, for a monthly average over that period of +160,375 new jobs created, which is a slight decrease from where this average stood as of last month.
During his campaign for President, Donald Trump promised to create 25,000,000 jobs during his Presidency. That would require the creation of 3,125,000 per year over an eight-year term for an average of 261,000 new jobs per month. Over a four-year term that would require 6,250,000 per year, for an average of 521,000 new jobs per month. Based on the average growth rate we have seen since the start of 2017 it would take nearly twelve and one-half years to reach that goal. Based on the average for 2018 to date, it would take roughly ten years to reach the goal. Based on the average jobs growth for the year to date, it would also take roughly twelve years to reach that goal. Based on the average for the past three months, it would also take roughly ten years to reach Trump’s goal. All of this, of course, assumes that we don’t have even a mild recession during that period. Needless to say, it is unlikely that we’re going to see sustained average jobs growth over the next three to seven years that would put us close to the President’s goal absent a significant change in the nature of the jobs market.
Looking deeper into the numbers, the average workweek across the board was increased by 0.1 hours to 34.5 hours while average hourly earnings rose 11 cents to $27.48. Over the year, average hourly earnings have risen by 84 cents or an annualized rate of 3.2%. This is a stronger wage growth number than we’ve seen in recent months, and it’s consistent with the increase we saw last month but it’s worth noting that it comes off several months when wage growth was essentially stagnant, so this may just end up being a statistical blip. As I’ve said before, the relatively slow growth we’ve seen in wage growth could be a sign we’re hitting an equilibrium point in the jobs market that will preclude big jumps in either hiring or hourly earnings on a sustained basis. Also on the positive side is the fact that labor force participation rose while long-term unemployment dropped a bit is a positive sign that more people are entering the jobs market on the belief that there’s more opportunity out there.
As The New York Times notes, these numbers, which are admittedly much stronger than expected,indicate that the economy is doing quite well notwithstanding the fact that the stock market is coming off its worst December since the Great Depression:
In the last couple of months, as stocks swayed and concern over the prospect of a recession ensued, the labor market was relatively steady. And December’s numbers ended the year with a flourish.
“It’s much higher than expected,” said Julia Pollak, a labor economist at the online employment market site ZipRecruiter. “The overall picture is that there is strong job growth on Main Street and it continues to be quite robust, despite uncertainty on Wall Street.”
And the unemployment rate seems to have risen for good reasons — more people are being drawn into the job market, perhaps because of higher wages. The labor force grew by a healthy 419,000 people last month.
Over all, employers added more jobs in 2018 than they did in 2017. But last year was unique, because Congress passed a big corporate tax cut that essentially bathed a sizzling economy in lighter fluid. Optimism among consumers and businesses soared. Manufacturers and builders kept hiring despite trade tensions and a slowdown in the housing market.
“People got used to these eye-popping job-growth numbers,” said Martha Gimbel, director of research for the job-search site Indeed. Even if hiring slows in the coming months, she said, “it doesn’t mean that anything’s wrong, it just means we are heading back to normal.”
December’s figures do not account for workers furloughed during the government shutdown, which began after last month’s surveys were conducted.
Even the best jobs numbers may not soothe investors for long.
“When market sentiment has gotten this negative, investors aren’t going to take one single data point and say: ‘Oh, we were wrong! Things are just fine,'” said Ellen Zentner, chief United States economist at Morgan Stanley. Markets can sink into pessimism much more quickly than they rise out of it, Ms. Zentner said.
Each month’s figures are revised twice, and provide snapshots of the past, not the future. Wall Street reacted badly Thursday to the release of the Institute for Supply Management’s monthly survey, which showed the biggest drop in manufacturing activity since 2008. (The index reading of 54.1 still showed an economy in expansion.) Measures of consumer and business confidence have also weakened recently.
Economists are not particularly troubled by that softening. They see it as a natural signal that the economy will grow more gradually this year. But investors have to weigh that interpretation — that the economy is peacefully drifting toward less exciting times — against the possibility that it is reeling toward calamity. It hasn’t helped the mood of investors (or President Trump) that the Federal Reserve decided to raise its target lending rate four times in 2018.
The hard evidence in this report suggests that fears of a recession are overblown. Wall Street, of course, has the potential to create the bad news it seems to be anticipating. Consumers are much more likely to own homes than stocks. But concern over withering retirement funds could prompt Americans to tamp down on spending. And business owners might start to pull back on investments. The combination could eventually chip away at economic growth.
“There can be a vicious feedback loop, whereby markets can become self-fulfilling prophecies,” Ms. Zentner said.
The unemployment rate hovers near a 50-year nadir. Job openings are at record highs, and a growing number of workers are quitting, a sign of confidence in the hiring outlook.
Even wages, which for months only inched up, have begun to pick up more quickly. Year-over-year wage growth in December, at 3.2 percent, tied October for the highest gain since 2009. The recovery has gone on for so long that it has finally begun to lift the lowest-paid workers, who have seen the biggest gains, and African Americans, whose jobless rate has reached record lows.
“2018 was a banner year for the labor market,” said Ms. Pollak of ZipRecruiter. And while it’s hard to imagine the jobless rate dipping much lower, there are still Americans who either do not have jobs or are not clocking as many hours as they would like. The share of people have part-time positions but would prefer to work full time is higher today than it was in 2007.
And a far smaller share of the American population is working today than before the recession. That decline is partly because of the aging of the baby boom generation. But even among people in their prime working years, employment is down from before the recession, and far below its peak at the height of the dot-com boom.
“We still have room to grow,” Ms. Pollak said. “We are not yet at maximum employment.”
Jeff Cox at CNBC also strikes a mostly optimistic note:
Economy adds 312,000 jobs in December, blowing past forecasts 41 Mins Ago | 02:06
Job creation ended 2018 on a powerful note, with nonfarm payrolls surging by 312,000 in December though the unemployment rate rose to 3.9 percent.
The jobless rate, which was last higher in June, rose for the right reason as 419,000 new workers entered the workforce and the labor force participation rate increased to 63.1 percent. The participation level was up 0.2 percentage points from November and 0.4 percentage points compared with a year earlier.
A broader measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons held steady at 7.6 percent.
In addition to the big job gains, wages jumped 3.2 percent from a year ago and 0.4 percent over the previous month. The year-over-year increase is tied with October for the best since April 2009. The average work week rose 0.1 hour to 34.5 hours.
Economists surveyed by Dow Jones had been expecting job growth of just 176,000, though they projected the unemployment rate to fall to 3.6 percent. The wage number also was well above expectations of 3 percent on the year and 0.3 percent from November.
“The far bigger than expected 312,000 jump in non-farm payrolls in December would seem to make a mockery of market fears of an impending recession,” Paul Ashworth, chief U.S. economist at Capital Economics, said in a note. He added that the report “suggests the US economy still has considerable forward momentum.”
The report, released Friday by the Bureau of Labor Statistics, comes amid concern over whether the U.S. economy is part of a global deceleration, despite turning in its best year since the Great Recession.
Data released this week showed a key manufacturing mark hitting a two-year low and mortgage volume at its lowest in 18 years.
“The economy has been slowing, but someone forgot to tell the labor markets,” said Jim Baird, chief investment officer for Plante Moran Financial Advisors. “Employers, it would seem, didn’t get the memo from Mr. Market that it’s time to tighten their belts.”
There’s no denying that this is a strong jobs number, but it’s worth keeping a few things in mind. First, as we have seen throughout 2018 the jobs market has been somewhat inconsistent, rising strongly in some months while slowing to disappointing rates in others. This could be the beginning of a very positive trend headed into 2019, or it could just be a blip on the screen. Second, to some extent what we’re seeing in the December report could be a makeup for the disappointing numbers in November, which were impacted by colder than average temperatures and bad weather in the Eastern part of the country. Third, as is always the case at least part of the December number includes seasonal hiring for the holidays, particularly in retail and related fields such as transportation and delivery. These jobs seldom last much past January. Finally, these numbers do not reflect any impact from the government shutdown, which seems slated to last for some time. This will have an impact both on government employment and on employment in fields that rely on the Federal Government as a significant customer.
All that nowithstanding, this was a surprisingly strong report and one that is likely to put to rest for now any fears that we’re headed into a recession any time soon. Of course, it’s also likely to mean that the Federal Reserve Board will be inclined to raise interest rates again at some point in the future, and this will have an impact on both economic growth and on the direction the stock market takes. Nonetheless, this is good news and something the Trump Administration is likely to tout as a sign of success. Indeed, the President has already done so on his Twitter feed:
GREAT JOBS NUMBERS JUST ANNOUNCED!
— Donald J. Trump (@realDonaldTrump) January 4, 2019
Of course, these are the same jobs numbers from the same agency of the Federal Government that the President used to denounce as phony when they were released under the Obama Administration.