Strong December jobs report caps off best year for jobs growth since 1999

But there are caveats that suggest that the US labor market is far from robust, even this far out from the end of the recession. Among them: Wages are not increasing as fast as they’d be expected to at this point in the labor market cycle.

Without question, 2014 has been the best year for jobs since the Great Recession ended in 2009. For the first time, monthly jobs growth has exceeded 200,000 new jobs each month of the year, which itself is something we had not seen in the previous four years, and for most of the year has averaged roughly 220,000 new jobs per month. In recent months, we’ve seen compellingly strong numbers, especially last month’s release of the November report, which saw some of the best jobs creation we’d seen in years. Heading into the December report’s release today, the consensus among forecasters was for another mostly positive month, albeit one that was not nearly as good as November. As it turned out, the news for December was mostly good news, but there are several caveats that suggest yet again that the labor market is far from robust, even this far out from the end of the recession.

Total nonfarm payroll employment rose by 252,000 in December, and the unemployment rate declined to 5.6 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, construction, food services and drinking places, health care, and manufacturing.

The unemployment rate declined by 0.2 percentage point to 5.6 percent in December, and the number of unemployed persons declined by 383,000 to 8.7 million. Over the year, the unemployment rate and the number of unemployed persons were down by 1.1 percentage points and 1.7 million, respectively. (See table A-1.)

Among the major worker groups, the unemployment rate for adult women (5.0 percent) decreased by 0.2 percentage point in December, while the rates for adult men (5.3 percent), teenagers (16.8 percent), whites (4.8 percent), blacks (10.4 percent), and Hispanics (6.5 percent) showed little change. The jobless rate for Asians, at 4.2 percent (not seasonally adjusted), changed little from a year earlier. (See tables A-1, A-2, and A-3.)

(…)

Total nonfarm payroll employment increased by 252,000 in December. In 2014, job growth averaged 246,000 per month, compared with an average monthly gain of 194,000 in 2013. In December, employment increased in professional and business services, construction, food services and drinking places, health care, and manufacturing. (See table B-1.)

Employment in professional and business services rose by 52,000 in December. Monthly job gains in the industry averaged 61,000 in 2014. In December, employment increased in administrative and waste services (+35,000), computer systems design and related services (+9,000), and architectural and engineering services (+5,000). Employment in accounting and bookkeeping services declined (-14,000), offsetting an increase of the same amount in November.

Construction added 48,000 jobs in December, well above the employment gains in recent months. Specialty trade contractors added jobs in December (+26,000), with the gain about equally split between residential and nonresidential contractors. Employment also increased in heavy and civil engineering construction (+12,000) and in nonresidential building (+10,000).

In December, employment in food services and drinking places increased by 44,000. The industry added an average of 30,000 jobs per month in 2014.

Health care added 34,000 jobs in December. Job gains occurred in ambulatory health care services (+16,000), nursing and residential care facilities (+11,000), and  hospitals (+7,000). Employment growth in health care averaged 26,000 per month in 2014 and 17,000 per month in 2013.

In December, manufacturing employment increased by 17,000, with durable goods (+13,000) accounting for most of the gain. Manufacturing added an average of 16,000 jobs per month in 2014, compared with an average gain of 7,000 jobs per month in 2013.

Employment in wholesale trade and in financial activities continued to trend up in December.

Employment in retail trade changed little in December, following a large gain in November. Employment in other major industries, including mining and logging, transportation and warehousing, information, and government, changed little in December.

As is typically the case, there were revisions for the previous two months, with October job growth being revised upward from 243,000 to 261,000, and November job growth being revised upward from 321,000 to 353,000. Additionally, there was a slight drop in the long-term unemployment rate, although that may in part be attributable to a drop in labor force participation, although the employment rate remained unchanged. The one damper on the good news of the top-line numbers came in the details:

The average workweek for all employees on private nonfarm payrolls was unchanged at 34.6 hours in December. The manufacturing workweek edged down by 0.1 hour to 41.0 hours, and factory overtime edged up by 0.1 hour to 3.6 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged up by 0.1 hour to 33.9 hours. (See tables B-2 and B-7.)

In December, average hourly earnings for all employees on private nonfarm payrolls decreased by 5 cents to $24.57, following an increase of 6 cents in November. Over the year, average hourly earnings have risen by 1.7 percent. In December, average hourly earnings of private-sector production and nonsupervisory employees decreased by 6 cents to $20.68. (See tables B-3 and B-8.)

What these number suggest is that the demand for jobs is still low enough compared to supply that employers are not feeling pressure to increase wages or overall compensation to compete for applicants. That, combined with changes in productivity that mean that the average worker is able to get far more work done in a given period of time, means that wages are not increasing as fast as they’d be expected to at this point in the labor market cycle. An additional factor that may be playing a role here are the mandates that the Affordable Care Act puts in place which tie the obligation for employers to provide health-care coverage to the number of employees working a certain number of hours over a given period. By cutting back on hours for some employees, employers are able to control health-care costs as well, which accounts for a significant expense on the balance sheets of many businesses, and especially small and medium-sized businesses with thin profit margins.

Notwithstanding the wage segment of the report, The New York Times  is largely positive about the numbers, and sees signs of a good 2015:

Capping the best year for the job market since the recession began eight years ago, employers added 252,000 jobs in December, the Labor Department reported Friday, and unemployment fell to 5.6 percent. The unemployment rate was last that low in June 2008.

The number of new people put on payrolls last month was above what economists had forecast, consistent with the view that recovery is finally gaining traction after years of only modest growth. In addition, the number of jobs created in November was revised upward to 353,000, from 321,000. That month, the unemployment rate was 5.8 percent.

“The economy has some momentum,” said Robert Shapiro, chairman of Sonecon, an economic consultant firm, in an interview before the labor report. “I think it’s kind of hit a stride with respect to job creation.”

Optimism over the wage gains of November, when average hourly earnings rose 0.4 percent, was tempered by December’s results, which showed a decreased of 0.2 percent. In a long recent stretch, earnings either fell short of or barely outpaced the inflation rate.

“Eventually a healthier labor market should translate into decent wage growth,” said Elise Gould, a senior economist for the Economic Policy Institute, in a note before the release of the jobs numbers. “The question is, when will workers start seeing the decent economic news reflected in their paychecks?”

For now, 2015 is shaping up to be the year of the consumer, with benefits from lower prices for imported goods as well as falling oil prices, which are offering a windfall. One economist likened the lower prices to the equivalent of a decent pay raise of about $1,000 a person for the year, if prices stay low.

“There are tremendous tailwinds for consumers,” said Mark Zandi, chief economist for Moody’s Analytics. “There’s nothing stopping them from spending more. There are more jobs, better wage growth, rising housing values – confidence is improving and now there’s a sharp decline in gasoline prices.”

The drop in oil prices represents a substantial transfer of income from oil producers to oil consumers, said Kevin Logan, a chief economist for HSBC Bank. American oil producers have announced plans to shut dozens of rigs, though, and workers are expected to lose jobs. The economies in oil- and shale-producing regions like Louisiana and North Dakota might suffer.

“Every dollar gained is a dollar lost, but the benefits are widespread and the losses are concentrated and will be small,” Mr. Logan said.

CNBC is more circumspect:

Job creation kept the pace in December, with the U.S. economy creating 252,000 jobs to close out the year, while the unemployment rate dropped to 5.6 percent.

The U.S. was expected to create 240,000 jobs in December, after adding an unexpectedly strong 353,000 jobs the prior month. The unemployment rate was seen falling to 5.7 percent from 5.8 percent a month earlier. An alternative measure that includes the underemployed and those who have stopped searching for employment also fell, moving from 11.4 percent to 11.2 percent, its lowest reading since October 2008.

After initially reacting positively to the report, markets changed direction with stocks opening in negative territory.

Businesses had been creating jobs at a monthly pace of 224,000, though wage growth remained modest and the drop in the headline rate had come in large part due to a decline in the labor force participation rate. Indeed, the participation rate continued to plummet, falling to a fresh 37-year low of 62.7 percent.

Job quality did not fare well either, with wages actually declining for the month by 5 cents an hour, pulling the annualized gain down to 1.7 percent. The average work week held steady at 34.6 hours. However, the amount of full-time workers surged by 427,000 while part-time positions dropped by 269,000.

“It was generally a decent report,” said Marie Schofield, chief economist at Columbia Investment Management. “The trends are strengthening.”

Professional and business services led the way, with 52,000 new positions. Construction added 48,000, while bars and restaurants hired another 44,000 workers.

The holiday shopping season did nothing to help the retail trade, however, with the Labor Department reporting little change in payrolls after a jump in November.

While it’s important not to ignore the caveats, it’s worth noting again that 2014 was the best year for job growth since 1999, a fact which indicates not only potential good news going forward but also a reminder of just how weak the economy has actually been since recovering from the brief recession that we experienced in the wake of the bursting of the dot-com bubble at the end of the '90s. The so-called Bush recovery wasn’t much of a recovery at all, and the Obama recovery has, if anything, been even weaker, at least until this year. 2014 is arguably the beginning of a turnaround in that recovery, as both the jobs reports and GDP growth have seemed to confirm over the balance of the year, but the proof of whether or not this is a sustainable new trend remains to be seen. In the short term, declines in energy prices are likely to have beneficial effects for the economy as a whole, especially in the consumer spending area and for corporate profits in industries that are dependent on heavy use of energy. In the longer term, though, there are signs that the economies of Europe and other parts of the world may be weakening, something that is bound to have an impact in the United States at some point. In any case, it’s been a fairly good year for jobs here in the United States, but the wage numbers indicate that it could be much better, and that we’ve still got a long way to go before we can say that the economy is truly healthy.