The December Employment Situation report numbers from the Bureau of Labor Statistics showed a hefty 312,000 jobs added, well above the 180,000 expected. Revisions to the previous two months added another 58,000 jobs. The consensus on new December jobs was notably diffuse this month, some very serious analysts projecting numbers relatively far above and below that average result. No one, however, was suggesting any figure nearly this large. Health care, food services, construction, manufacturing, retail trade, and business services were all strong, with other sectors essentially unchanged. Average hourly earnings came in a bit above expectation as well, at 3.2% year-over-year. New jobs for 2018 totaled highest since 2015.
This dispersion of beliefs no doubt reflects uncertainties about the economy. The fundamentals in the economy look okay (and considering this report, maybe better than okay), albeit a bit off from last year’s unsustainable pace. But the volatility in equity markets suggests risks are rising. Recent political activity has not helped stabilize expectations.
The headline unemployment rate rose, .02 percent to 3.9 percent, versus the expectations that it would remain unchanged. The move reflected a small increase in the number of unemployed, most of which is coming from increased voluntary separations. The labor force participation rate was essentially unchanged. The broadest measure of labor underutilization, U6, remains at 7.6 percent.
The headline unemployment rate is still quite low. The real message in today’s report is the extremely strong job creation and decent earnings growth. It’s difficult to assess this as anything other than a very strong report. Unfortunately, this report doesn’t clarify the outlook. By itself, with job growth this strong, there is a strong argument for the Fed to continue tightening. Financial markets’ view of the future is more mixed, but that’s the issue: the base of the economy – employment – is surprisingly, and unsustainably in the long run, strong.
About the Author
Tom Cunningham holds a Ph.D. in economics from Columbia University and was senior economist with the Federal Reserve Bank of Atlanta from 1985 to 2015. Mr. Cunningham serves as a consultant to MST in the creation and ongoing development of the MST Virtual Economist and is the MST Advisory economics specialist.
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