U.S. December Payroll Hints at Promising Economic Future

The December job growth exceeded analyst expectations of a gain of about 200,000 net new positions and was an improvement over November’s revised 252,000 figure.

“We continue to expect that the pace of employment gains during the last two years will become increasingly hard to sustain in 2016 but will reflect more slower growth in labor supply than a faltering in demand, with most of the slack generated by the 2008-2009 recession now having been absorbed and the underlying working-age-population growth expected to remain historically slow”, he added. In 2014, the economy added 3.1 million jobs. Hourly wages increased 2.5 percent during 2015, and overall, wages edged up 0.5 percent during November of a year ago, according to the Commerce Department.

Last month, the Fed voted unanimously to raise the base interest rate by a quarter of 1 percent, its first increase in a decade. Professional and business services, which includes accountants, engineers, and architects as well as lower-paid temporary workers, added 73,000. Prices for futures tied to the Fed’s benchmark rate suggest investors now see a 52 percent chance of a hike in March, up from about 44 percent a day before the employment data was released.

Wages were flat in December compared with the prior month and rose 2.5% against the prior year.

The labor force participation rate, at 62.6 percent, also has changed little in recent months, the agency reported.

It’s a promising sign for the year ahead, economists say. Wage growth was particularly strong in the second half of 2015, which could increase confidence the persistently low inflation could rise toward the Fed’s 2 percent target this year.

Employment in transportation and warehousing rose by 23,000 in December, with a gain of 15,000 in couriers and messengers, the report said. Over the year, those industries added 655,000, 605,000, and 419,000 jobs in 2015. The unemployment rate, obtained through a separate survey, held steady at 5% last month. Construction companies added 24,000 jobs, while retailers and shipping firms added 38,000.

Employment in mining continued to decline in December (-8,000). Louisville’s rate in November was 4.2 percent.

An analysis of long-term changes affecting the labour market released this week by the Federal Reserve Bank of St. Louis focused on how automation and offshoring were continuing to reduce the number of middle-skill jobs, like those in manufacturing and production. Fourth-quarter GDP growth estimates now range from as low as a 0.4 percent annual rate to as high as a 1.1 percent pace.

Construction showed strong job growth for the third consecutive month, gaining 45,000 jobs last month. “When so many people remain unemployed and underemployed, we must continue to take more action”.

The most likely result is some mix of both – the rate of job creation slows down, but also the labor force grows as people return to the workforce.