Strong Employment Report Pushes Back on Slowdown Fears

The U.S. added 312,000 jobs in December, annual wage growth rises 3.2 percent

Robert Spendlove and Joseph Mayans Jan 4, 2019

The U.S. labor market added a 10-month high 312,000 jobs in December. The better-than-expected job growth comes at a time when many economist and investors are predicting an economic slowdown. This morning’s employment report, however, pushes back on those claims and shows the labor market has plenty of room left to run. On top of robust hiring, annual wage growth beat estimates, rising 3.2 percent - the highest level since 2009. The labor force participation rate, which measures those working and looking for work, rose from 62.9 percent to 63.1 percent, indicating that the strong labor market is drawing people off the sidelines in search of work. With the rise in the participation rate, unemployment rose two-tenths of a percent to 3.9 percent.

december 2018 job gains highest in ten months

Top Takeaways from the Report

Despite fears of a slowdown, the labor market remains very strong

Due to the ongoing trade spat with China, extreme volatility in financial markets, and fears over global economic weakness, many analysts have been predicting an economic slowdown in the U.S. However, December’s employment report shows that the labor market remains exceedingly healthy. The 312,000 jobs added were considerably higher than the estimated 180,000 that economists were predicting. Additionally, job gains in October and November were both revised higher, adding a combined 58,000 more jobs than initially reported.

While the unemployment rate rose from 3.7 percent in November to 3.9 percent in December, it was for good reasons. The labor force participation rate rose to the highest-level since September 2017, indicating that many new workers decided to join the labor force. As more individuals enter the labor force and look for work, they are counted as unemployed until they find a job, which causes the unemployment rate to temporarily rise. The broader measure of underemployment remained level at 7.6 percent. This is a good sign as it shows that individuals are finding the types of jobs they are looking for – a key signal of a strong labor market.

Likely one of the biggest take-aways from the employment report, was the increase in annual wage growth from 3.1 percent in November to 3.2 percent in December. This was higher than analyst estimates and shows that the wage gains seen in previous months were not just a flash in the pan. Wage growth will be a major factor in the Fed’s decision making in 2019 and will be one of the most important metrics to watch. With many companies boosting minimum wages across the country, wage growth could continue to rise in the coming months.

The Fed’s estimated two interest rate increases in 2019 remains a possibility

Going into the Fed’s December meeting, many investors and economists were calling on the Fed to halt interest rate increases due to deteriorating conditions abroad and volatile financial markets. Against these calls, the Fed raised interest rates another quarter-point to a range between 2.25 – 2.50 percent, and pointed to two more rate hikes in 2019. But over the past couple of weeks, new data came in suggesting that the weakness was more widespread, causing a number of traders to predict that the Fed would not raise rates at all in 2019 or even perhaps would cut rates. With December’s employment report showing such considerable strength, those calls may be premature, and the Fed could still raise rates twice in 2019. However, the lingering trade issues with China, a protracted government shutdown, and an overall decline in global economic growth could still play spoiler to the Fed’s plans.

Growth by Select Industry

The education and health services sector added 82,000 jobs in December, with 50,200 of those jobs coming from health care. The health care sector added 346,000 jobs in 2018, roughly 62,000 more jobs than it added in 2017.

Leisure and Hospitality added the second-highest number of jobs in December of 55,000. The majority of job gains came from food services and drinking places, which added 40,700 jobs.

The manufacturing sector continued to expand, adding 32,000 jobs in December. After revisions, the manufacturing sector has added jobs for the past 17-consecutive months.

The Bottom Line

Despite calls for an economic slowdown, the U.S. labor market is proving to be surprisingly strong. With better-than-expected job gains and rising wages, the Fed may have what it needs to continue increasing interest rates in 2019.


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