Despite a Disappointing Headline, the December Jobs Report Points to Positive Momentum for the Economy

By Robert Hughes

Payrolls in the United States rose by a disappointing 148,000 in December following two monthly gains above 200,000 in a row. Despite the weak headline jobs gain, most of the information in the December report was positive and provides additional evidence for a continuing economic expansion.

The 148,000-job gain was below consensus expectations of 190,000 new jobs for December and was well below the ADP Research Institute estimate of 250,000 new private sector jobs. However, the December gain follows a 252,000-job increase in November and 211,000-job increase in October. Over the past three months, payrolls have risen an average of 204,000, a very solid result. Private sector payrolls added 146,000 in December following increases of 239,000 in November and 222,000 in October. For the private sector, the three-month average increase comes in at a healthy 202,000.

Gains were widespread among the private sector industries, though additions in some private services industries were notably slower in December. Among the private sector gainers, construction added 30,000 jobs, bringing the 12-month total to 210,000, and manufacturing industries added 25,000 jobs for the month compared to a 12-month total gain of 196,000. Private services industries added just 91,000 jobs in December. Among the individual private services industries, leisure and hospitality added 29,000 jobs for the month and a total of 306,000 over the past year; professional- and business-services payrolls rose by 19,000 last month and have added 527,000 workers over the past year; and health care added 29,000 employees in December, bringing the 12-month total to 374,000.

The solid pace of job creation attracted 64,000 more people into the labor force in December and a total of 869,000 in the past year. Those new entrants have pushed the labor-force participation rate up to 62.7 percent, up from the postrecession low of 62.3 percent in September 2015 but still well below both the 66 percent rate just prior to the last recession and the all-time peak of 67.3 in the first quarter of 2000. Despite the added people in the labor force, the unemployment rate held at 4.1 percent for the third month in a row in December, holding at the low for the current expansion and below the 4.4 percent low of the prior expansion (see chart).

Average hourly earnings rose 0.3 percent in December, maintaining the 12-month change at 2.5 percent. The length of the average workweek also held steady at 34.5 hours. Combined, the gains in payrolls, the hours worked, and hourly earnings resulted in a 4.5 percent increase in the aggregate-payrolls index, a proxy for take-home pay (see chart). This index has been growing in the 4 to 4.5 percent range for most of 2011–17, which provides a solid base to support consumer spending.

The weak points in the report are industry-specific. The retail industry saw a 20,000-employee reduction in payrolls, and the information-services industry added just 7,000 jobs in December. Even worse, over the past year, retail has lost a total of 67,000 jobs while information industries have lost 40,000 jobs. Both industries are in the midst of competitive disruption and restructuring. The positive side of disruption is that it often creates new opportunities and makes the economy stronger and more efficient in the long run.

Overall, the employment report is quite solid. The labor market remains the cornerstone of the current expansion and is boosting household incomes as well as consumer confidence, and suggests a positive outlook for the current expansion.

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Robert 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.