By Thomas Cooley and Peter Rupert
The establishment survey from the BLS announced a 312,000 increase in payroll employment for December. According to the NY Times, Wall Street analysts expected an increase of 180,000…off by 132,000! In addition there were upward revisions in October (+37,000) and November (+21,000); totaling +58,000.
The private sector posted gains of 301,000 and government jobs increased 11,000. Service producing jobs increased 227,000 with 57,900 added in health care. Gains were seen in all major sectors but one, information declined slightly, down 1,000. In fact the diffusion index (the percent of industries with employment increasing plus one-half of the industries with unchanged employment, where 50 percent indicates an equal balance between industries with increasing and decreasing employment) skyrocketed from 61.0 to 70.0.
Average weekly hours rose slightly from 34.4 to 34.5. Average (nominal) hourly earnings increased 0.4% from $27.37 to $27.48 and have increased 3.2% year over year. With the CPI increasing by about 2.2% over the year implies real earnings gains. The growth in earnings over the past few months is the highest since the middle of 2009.
The household survey showed an increase in the population of 180,000 and increase in the labor force of 419,000, leading to an increase in the labor force participation from 62.9 to 63.1. The number of unemployed persons increased by 276,000 leading to an increase in the unemployment rate, from 3.70% to 3.86%. An obvious issue with the unemployment rate is that it can rise and fall for various reasons and one has to know why it went up or down. For example, suppose people see a strong, growing labor market and leave their job to search for better opportunities. Ceteris paribus, the unemployment rate increases…but this seems like a good thing for individuals. Indeed, the number of unemployed persons rose by 276,000 in December. Roughly half of that number was due to job leavers. Another 89,000 of the additional unemployed came from reentrants and new entrants to the workforce.
The Atlanta Fed Jobs Calculator shows that given the current labor force participation rate of 63.1% to maintain the 3.86% unemployment rate the average monthly employment growth would have to be about 111,000. From December 2017 to December 2018 the labor market created about 2.6 million more jobs in the total nonfarm sector for an average monthly increase around 220,000.
Moreover, there are more jobs looking for workers than unemployed persons. The JOLTS data show more vacancies than unemployed persons in total as well as across the census regions.
The Big Picture
Financial tumult notwithstanding, the labor market continues its decade long overall growth. There is little in the labor market data that would deter the FED from its stated path.