December Jobs Report: End of Year Slowdown

The U.S. labor market slowed in December, adding a less than expected 148,000 jobs. The official unemployment rate remained at a 17-year low of 4.1 percent, but the broader measure of unemployment, which includes those in part-time jobs looking for full-time work and discouraged workers, rose a tenth of a percent from 8.0 percent to 8.1 percent. The labor force participation rate stayed flat at 62.7 percent and shows little sign of making a significant move to the upside. Wages grew at 2.5 percent annually. This is the final employment report of 2017, and caps-off a solid year of growth, in which the U.S. labor market added roughly 2.1 million jobs.

The labor market remains on solid footing

While the labor market added a less than expected 148,000 jobs, it continues to show signs of strength. The economy has added jobs for the past 87 months, and recent employment reports point toward that trend continuing into 2018. October’s employment numbers were revised down from 244,000 to 211,000, and November’s were revised up from 228,000 to 252,000. In December, the private sector added 146,000 jobs.

Unemployment rate at 17-year low

The unemployment rate remained at a 17-year low in December, a level at which it has stayed for the past 3 months. Officials at the Federal Reserve expect that the unemployment rate will fall under 4.0 percent in the coming months. In December, the broader measure of unemployment, which measures part-time workers looking for full-time work, and discouraged workers, rose slightly from 8.0 percent to 8.1 percent. This may hint that there are more workers in-waiting that can be drawn from as the labor market remains at or near full employment.

Labor force participation rate remains flat

The labor force participation rate remained at 62.7 percent, a level at which it has stayed for the past 3 months. The rate, which measures the number of individuals working or looking for work, has been on a long-term downward trend and has struggled to find its footing in 2017. This trend will likely continue into 2018, as baby boomers continue their move into retirement.

Wages are growing, but less than expected

Despite continued strength in the labor market, wage growth refuses to pick-up in a meaningful way. Annual wage growth registered at 2.5 percent in December, and has showed little-sign of increasing. Economists have been pointing to the retirement of the baby boomers, increased labor competition from abroad, and the disproportionate growth of lower-paying jobs as reasons for lackluster wage gains. Wage growth will be a hot topic in 2018, and will likely be a key component in the Fed’s decision making in the months to come.

Employment in the health care sector rose the most in December, adding 31,000 jobs.

The construction sector added 30,000 jobs in December. The sector has added 210,000 jobs over the past year.

Manufacturing continued to perform well, adding 25,000 jobs. 2017 has been a year of reversal for the sector, which added a total of 196,000 jobs, vs a loss of 16,000 in 2016.

In a somewhat surprising miss, the retail trade sector lost 20,300 jobs in December. The losses were concentrated in department and other retail stores. Look for further clarification on this loss in next month’s employment report.

The Bottom Line – The U.S. labor market capped-off 2017 with a solid, but not spectacular month of December. While hiring came in lower than expected, the U.S. economy is performing quite well as a whole. Economic growth has improved over the last two-quarters, hiring has remained solid, unemployment is at 17-year lows, and consumer confidence is strong. These trends, coupled with the recently passed tax cuts, should provide strong momentum heading into 2018.