December 2017 Jobs Report
….Record highs for the Dow, S&P 500, Nasdaq, and Russell 2000. 148,000 new jobs in December. Unemployment rate at 4.1%. U-6 ticks up to 8.1%. Wages continue to disappoint….
Financial Review by Sinclair Noe for 01-05-2018
DOW + 220 = 25,295
SPX + 19 = 2743
NAS + 58 = 7136
RUT + 4 = 1560
10 Y + .02 = 2.48%
OIL – .42 = 61.59
GOLD – 3.20 = 1319.80
Record highs for the Dow, S&P 500, Nasdaq, and Russell 2000.
The Bureau of Labor Statistics reports the economy added 148,000 new jobs in December. The unemployment rate held steady at 4.1% for the third consecutive month. Most estimates had been in the 180,000 to 200,000 range, so today’s report was a bit disappointing. The agency also issued revised figures for the two most recent months, dropping the October number from a gain of 244,000 to a gain of 211,000 and raising the November result from 228,000 to 252,000. Together, those months’ gains are now 9,000 less than had been previously reported. And the December results represent a sharp drop. However, just because this jobs total did not hit consensus, it’s still tens of thousands of jobs to the positive – that is, the current U.S. labor market only needs around 80K-100K new jobs per month to keep growing.
US job growth fell in 2017, to 2.055 million from 2.2 million in 2016; that works out to just over 171,000 new jobs per month on average for 2017, compared to 187,000 new jobs per month on average for 2016. The result narrowly maintains the country’s seven-year streak of adding at least 2 million jobs. The December gain is the 87th consecutive month of job growth, an unparalleled stretch of good news for workers. At this point in the expansion, almost 2.1 million jobs is quite good. During the first 11 months of the Trump administration, the economy has added 1.83 million jobs. The rate of job growth is slowing slightly, but we still have pretty good job growth.
The amount of money the typical worker earns per hour isn’t rising very rapidly despite all the hiring, the low unemployment rate and a shortage of skilled job applicants. The annualized increase in hourly pay hit a seven-year high of 2.9% at the end of 2016, but it has since slipped. In the past, wage gains in good times usually averaged 3% to 4% a year. Hourly pay may have risen in December, up 0.3% or 9 cents to $26.62 an hour, but that was only fast enough to keep the increase over the last 12 months at 2.5%. The average workweek for all employees was unchanged at 34.5 hours in December. Wages continue to disappoint. At this point in the expansion, it is reasonable to expect wage price pressure, but we have been saying that for a couple of years now, and so far, it hasn’t happened.
The lack of higher pay is keeping many workers on the sidelines, translating to low labor-force participation; unchanged at 62.7% in December. Of course, many workers will not be returning to the labor pool. The boomer generation is retiring at a rate of 10,000 per day, some retirees may work again, most will not. There are also fewer unemployed or underemployed to hire, and fewer immigrants coming into the country to work. The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.5 million in December and accounted for 22.9 percent of the unemployed. Over the year, the number of long-term unemployed declined by 354,000.
The U-6 unemployment rate, which includes unemployed and under-employed or under-utilized workers increased slightly to 8.1%. According to the BLS, there are 1.52 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 1.59 million in November. This is the lowest level since April 2008.
Here’s how key sectors performed for December: Construction added 30,000 jobs. Manufacturing gained 25,000 jobs. Leisure and hospitality added 29,000. Education and health services posted a gain of 28,000. Professional and business services added 19,000 jobs. Government added 2,000 jobs last month. Retail trade lost just over 20,000 jobs. Considering holiday shopping season, when retailers traditionally add temporary jobs in the stores for the influx of shoppers, this number seems like something of an anomaly. Transportation and warehousing gained just under 2,000; indicating that that brick and mortar retail workers are not moving over to e-commerce fulfillment positions. Yesterday, Macy’s announced it will shut down seven locations and cut 5,000 jobs, in keeping with its announced plan in August 2016 to close 100 stores. Of those 100 closures, 81 have been announced. The company actually had a strong holiday season — sales in stores rose 1.1 percent.
Here’s how key sectors performed for the calendar year: Health care added 300,000 jobs, less than the 2016 increase of 379,000. Professional and business services added 527,000 jobs, in line with its 2016 gain. Construction employment rose by 210,000 — higher than the 155,000 gain in 2016. Factory employment increased by 196,000, after seeing little change in 2016. Retail employment edged down in 2017, losing 67,000 jobs after gaining 203,000 jobs in 2016. The food services and drinking places industry added 249,000 jobs, slightly down from 276,000 in 2016.
The BLS report still sends a promising message to job seekers: Employers will be increasingly desperate for your applications in 2018. There are now six million vacancies in the United States and 6.6 million unemployed people. That is almost one job open for every unemployed person. However, companies nationwide keep struggling to fill roles, citing tight labor markets, retiring baby boomers and failed drug tests. Factories, hospitals, contractors and eateries, among other employers, face this trouble. Restaurants are finding it extremely challenging to find workers. Many have even eliminated drug testing because finding employees is so difficult. Employers increasingly are turning to on-the-job training to find and retain employees — but that could be keeping wages down. In manufacturing and metals, especially, employers have been saying they could grow faster if they could find somebody, anybody. They’ll hire whoever they can find, pay them a low wage and train them up.
There are still people who haven’t come back into the work force following the recession, or that they’ve tried but have been unsuccessful. What’s curious is why employers who are screaming that they can’t find people to hire aren’t pulling those people back in. It is too early to measure the hiring effects of the corporate tax cut passed last month, but the Tax Cuts and Jobs Act of 2017 came with a promise that big tax cuts for corporate America would translate into more jobs and higher wages for American workers; that corporate profits, freed from tax burdens would trickle down to workers. Time will tell.
There are signs beneath the surface, that more widespread wage growth may be around the corner. In areas where unemployment has dipped below the national rate, pay has begun to accelerate. Again, the tax plan was just passed last month, so it is too early to attribute wage growth to lower corporate taxes – rather, the labor market is getting tighter – in some places more than others. Cities where joblessness is 3.5 percent or lower have witnessed an impressive 4 percent year-over-year increase in earnings. Further, many states and municipalities saw minimum wage hikes kick in on January 1st. Increases in minimum wages tend to push wages higher for low-income workers – those earning just a bit above minimum.
Over the last few months, the industries that have been performing particularly well have been construction and manufacturing — middle-wage, middle-skill sectors that had been lagging. Part of the uptick in construction is due to rebuilding following major hurricanes. The manufacturing uptick is part of a global economic resurgence. The rest of the world is also in the midst of a strong recovery, helping to drive an American uptick in productive blue-collar work. But it is not just a matter of paying qualified workers more to drag them in off the sidelines. Sometimes, it is a matter of matching workers to the jobs. In its December monthly Workforce Report, LinkedIn was able to determine which areas of the country have “skills gaps”—scenarios in which employers don’t have enough candidates with relevant skills or, conversely, are contending with a candidate pool that’s oversaturated with qualified applicants. The report also shows which industries are hiring, where they are hiring, and who gets those jobs, among countless other datasets. The research also indicates that employers need to be more involved in training, and need to broaden their requirements to go beyond what they currently perceive as being a “qualified” or traditionally qualified candidate for that role. There are some incredibly capable workers who did not earn a typical 4-year degree.
Beyond that, today’s report probably will not change the Federal Reserve’s plans for additional rate hikes in 2018. And with each rate hike we move away from accommodative monetary policy, which is to say the Fed will tap the brakes on the economy. In a year or 2, we may look back fondly on the months where we had 148,000 new jobs created.