United States: Payrolls make strong gains in December jobs report; unemployment rises due to higher participation rate
The December jobs report released by the Bureau of Labor Statistics (BLS) shows payroll gains soared in the month, delivering a strong finish to an already robust performance from the labor market in 2018. Non-farm payrolls increased by 312,000 in December, up significantly from a revised 176,000 in November (previous estimate: +155,000) and vastly exceeding market expectations of 180,000. Combined with revisions to previous months’ data, this puts the three-month average payroll gains at a solid 254,000, exceeding the 200,000 monthly gains logged on average in the last 98 months—the longest consecutive streak of job creation on record in the U.S. economy.
In the industrial sector, job growth notably soared in construction after a flat reading in the previous month, while manufacturing gains remained solid. In the service sector, the December print was buttressed by impressive payroll gains in education and health services—which nearly quadrupled compared to November—as well as a strong showing in the leisure and hospitality sector. Retail trade, and professional and business services also posted healthy payroll increases.
This good end-of-year performance of the labor market likely contributed to the uptick in wage pressures observed in December. Hourly earnings shot up 0.4% month-on-month (November: +0.2% month-on-month), bringing wage growth to a solid 3.2% year-on-year, a notch up from November’s 3.1%. The reading positively surprised analysts, who had expected it to dip to 3.0%.
Meanwhile, the labor force participation rate increased from 62.9% in November to 63.1% in December as the labor market added 419,000 new entrants in the month—suggesting that people were drawn into the workforce thanks to rising wages. Consequently, the unemployment rate also increased from 3.7% in November to 3.9% in December, though this should largely be interpreted as a positive sign given the context.
While this month’s numbers are still provisional, they do suggest that fears of an imminent, sharp slowdown in the U.S. economy for now remain overblown, despite rising financial volatility and recent disappointing data—namely, December’s consumer confidence and ISM results—as the economy continues to add jobs at a robust pace. On the other hand, the strong likelihood of a gradual growth slowdown in 2019 means the Fed will probably not be overeager to tame the rising wage pressures observed in this month’s report.