– January 10, 2020

U.S. nonfarm payrolls growth disappointed in December, adding 145,000 employees, below the consensus estimate of 164,000. Furthermore, the prior two months estimates were revised down by a combined 14,000. For all of 2019, payrolls increased by 2.1 million, resulting in average monthly increases of 176,000. The unemployment rate held steady and average hourly earnings growth decelerated. Overall, the December report is disappointing, but suggests support for continued economic expansion, albeit at a slow pace.

For the private sector, nonfarm payrolls added 139,000 in December, below the consensus estimate of 152,000. That follows gains of 243,000 in November and 164,000 in September (see chart). Over the past year, private payrolls have added 1.9 million workers or an average of 162,000 per month, a solid pace of increase but below the 2018 average of 215,000 new private-sector employees per month (see chart).

Payrolls fell by 1,000 in goods-producing industries in December, led by a 9,000 decline in mining and logging industries. Durable manufacturing industries cut 7,000 workers while nondurable manufacturing eliminated 5,000. The lone bright spot among goods-producing industries was construction where companies added 20,000 jobs in December.

Private service-producing industries, which typically account for the lion’s share of job creation, added 140,000 workers, led by a 41,000 gain in retail employment. The increase in retail is unusual as retail employment has added a net 9,000 employees for the year. The increase may be a result of shifts in seasonal hiring, therefore it may not be repeated in future months. Leisure and hospitality industries added 40,000 while health care and social assistance hired 34,000 new workers. Professional and business services posted a gain of just 10,000 jobs, well below the 2019 average of 33,000. Transportation industries cut 10,000 workers while financial services, information industries, wholesale trade industries, and “other” industries added less than 10,000 new employees each.

Public sector employment rose by 6,000 in December after adding 13,000 in November. Census hiring may add volatility to the public-sector numbers over the course of 2020.

The unemployment rate held steady at 3.5 percent, matching a 50-year low. The labor force participation rate was also unchanged, remaining at 63.2 percent in December as 209,000 people joined the labor force.

Average hourly earnings rose 0.1 percent in December, pushing the 12-month change to 2.9 percent, down from a cycle peak of 3.4 percent in February and the slowest pace since July 2018 (see chart). The slowdown in average hourly earnings growth is another disappointing element of this report but given the low unemployment rate, is unlikely to be the start of a major collapse in earnings growth. Combining payrolls with hourly earnings and hours worked, the index of aggregate weekly payrolls rose 0.2 percent in December and is up 3.8 percent from a year ago (see chart). This index is a good proxy for take-home pay. The combination of slower payroll growth and slower hourly earnings growth has resulted in the slowest gain in aggregate weekly payrolls since January 2017. While the slower growth is disappointing, the aggregate index has posted relatively steady year-over-year gains in the 3.5 to 5.5 percent range since 2011. Continued gains in the aggregate-payrolls index is a positive sign for consumer income and is likely to support consumer spending and continued economic expansion, though the slowing pace of growth is a concern.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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