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Employment Situation: Wage Trend Higher, Job Creation Trend Slowing

January 6, 2017

Bottom Line: Wages rose in December, modestly more than expected, as payroll employment grew by 156k, less than expected. However, there were positive revisions to the prior two months that added 19k jobs. While manufacturing jobs grew by 17k jobs in December compared to the 12-month average of a 2k loss per month, business and professional services only added 15k jobs, much less than the trend rate of 44k for the last 12 months. On a trend basis, job creation slowed in 2016 as the economy added an average of 180k jobs per month, down from 229k in 2015 and 251k in 2014. Average hourly earnings, though, reveal a potential shift in trend higher. Average hourly earnings grew at 2.9% in 2016, sharply higher than the 2% rate in 2015 and 2.2% rate in 2014. While job creation is losing momentum, wage pressures nay reveal that employers are having trouble finding qualified, skilled workers and are paying hiring wages when they find those people.

Payroll Employment rose by 156k in December, compared with market expectations for an increase of 175k. The prior 2 months were revised, higher in November by 26k and lower in October by 7k.

Government jobs ROSE by 12k. Consequently, private sector jobs ROSE by 144k. Private education jobs rose by 6k. State and Local education jobs rose by 14k. Overall employment is now 1.5% ABOVE its year ago level, Over the past 12 months, 2,157k jobs have been created.

In December, the job gains were in Trade, Transportation & Utilities (+24k with 6k of those in Retail Trade), Professional & Business Services (+15k with a slip of 16k in Temp Help Services), Education & Health Services (+63k), Leisure & Hospitality (+24k), Manufacturing (+17k), Financial Activities (+13k), Government (+12k), and Construction (-3k). Jobs were shed in Information (-6k), and Other Services (-8k).

The Unemployment Rate ROSE by 0.1 percentage points in December to 4.7%, compared with market expectations for a small increase to 4.7%. Household employment rose by 63k while the labor force increased by 184k, resulting in an increase in the number of unemployed of 120k.

The Labor Force Participation Rate ROSE by 0.1 percentage points to 62.7%. The Employment-Population Ratio was UNCHANGED by 0.0 percentage points to 59.7%.

The number of people Working Part-Time for Economic Reasons FELL by 74k to 5,476k. while Long-Term Unemployment FELL by 25k to 1,831k (accounting for 24.3% of the unemployed), while the Mean Duration of Unemployment FELL by 0.2 weeks to 26.0 weeks.

There are now 7.5 million people officially unemployed. In addition, there are another 5,662k people who say they want a job but are not currently looking for one. Finally, another 5,476k people are working part-time because of slack economic conditions.

Hourly Earnings ROSE by 0.4% in December, above market expectations of 0.3%. Hourly earnings are now 1.7% ABOVE their year ago level. Weekly Earnings also ROSE by 0.4%, the result of the change in hourly earnings and a steady workweek. Weekly earnings are now 2.3% ABOVE their year ago level.

The Average Workweek was UNCHANGED at 34.3 hours, BELOW the market consensus at 34.4 hours.

Article by Contingent Macro Advisors