WHAT IT MEANS:
- INDICATOR: December Employment Report
- KEY DATA: Payrolls: +292,000; Revisions: +50,000; Unemployment Rate: 5.0% (unchanged); Hourly Wages: -$0.01
- IN A NUTSHELL: “With firms hiring like crazy, it is hard to believe the economy is not also growing solidly.”
Wow! That is best word to describe the job growth during the last few months of the year. In December, the gain was huge, but it didn’t even match the 307,000 new positions added in October. Over the past three months, an average of 284,000 jobs were created. For the year, total payrolls rose by 2.65 million, the second best increase in the last fifteen years. Only last year’s 3.1 million gain was greater. In December, the hiring was widespread. Construction was up sharply, though warm weather probably hyped the increase a bit. Manufacturers added workers, though there were cut backs in machinery and strangely, motor vehicles.
We set a record for vehicle sales in 2015 so it is doubtful the cut backs were demand related. And, of course, the oil patch continued to shrink. It is amazing that we had such strong growth overall despite a huge 130,000 decline in mining. Where there was real strength in December and for most of 2015, was the services sector. Health care is booming again, restaurants are adding workers like crazy, professional and business services, especially temp help firms, are bulking up, financial firms are feeling good enough to expand and transportation firms are moving in a lot of new people. Interestingly, the large overall increase was not the result of holiday hiring as retail and wholesale were up modestly.
As for the unemployment rate, it was stuck on 5.0% for the third consecutive month. The labor force grew strongly and that caused the participation rate to rise. The labor force participation rate has basically stabilized, declining an insignificant 0.1 percentage point over the year. I think it is time to put that made up problem to bed. For the year, the number of people unemployed fell sharply and we are back to April 2008 levels.
There was one very disappointing number in the report, though. The average hourly wage fell a penny, which was a major surprise. It is hard to see how the labor market can be this strong without wages increasing consistently, but that is what the Bureau of Labor Statistics is claiming. Over the year, wages are up a 2.5%. While that is a solid acceleration from the 1.8% increase posted last December, it is still less than hoped for.
MARKETS AND FED POLICY IMPLICATIONS:
This was a strong report, though without any wage increase, it was not as great as it could have been. Still, it clearly shows that the domestic economy is in very good shape. The report should buoy investors’ confidence, which has been battered by the China Syndrome fears. Since the U.S. economy is not greatly dependent on exports to China, it should continue to do well. Where problems arise is for those companies dependent on China for sales and especially earnings. But that is an equity market problem for some firms, not a fundamental economic issue for the U.S. economy.
Therefore, while the Fed may worry about China, the strong U.S. economy is what should determine future policy. Indeed, without the China overhang, this report would likely have cemented a March rate hike, which I still believe will happen. The Chinese situation shows how the Fed has left itself without any policy options. Right now, because rates are so low and the Fed has been so cautious in raising rates, the only policy option available is to not raise rates further! What can the Fed do if China is in real trouble? More QE? Enough said.
Joel L. Naroff
is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm. To read more of his blogs, CLICK HERE NOW.
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