Economic Monitor Weekly Commentary
Scott J. Brown, Ph.D.
Nonfarm payrolls rose by 148,000, less than expected, in the initial estimate for December, but the increase was hardly “weak.” There is a fair amount of noise in the monthly figures, but the underlying trend is lower. Despite a tight job market, average hourly earnings were up just 2.5% year-over-year.
Prior to seasonal adjustment, holiday payrolls (retail, couriers) rose by 202,100 (vs. 283,200 a year ago), but November was a lot stronger (+531,500 vs. 2016’s +438,100). Private-sector payroll growth in 2017 was about the same as in 2016, but that was due largely to a decline in the unemployment rate (to 4.1%, from 4.7% a year ago). The unemployment rate cannot fall forever. A steady unemployment rate would be consistent with monthly growth in nonfarm payrolls of less than 100,000.
Other signs of labor market slack, such as involuntary part-time employment, have continued to improve, consistent with tighter job market conditions. More firms are reporting difficulties finding qualified workers.
Labor force participation in December was the same as a year ago, but the employment/population ratio for prime-age workers is nearing pre-recession levels.
Despite tighter job market conditions, wage pressures have remained moderate. Average hourly earnings for the fourth quarter were up 2.4% y/y. Eighteen states increased their minimum wages this month, which ought to boost average hourly earnings growth in the near term (and typically, increases in the minimum wage echo up the income scale).
The Yellen Fed was more likely to let the job market run. Improvement disproportionally favors those at the low end of the scale (the African American unemployment rate hit a record low in December). Rising wage pressures should lead firms to allocate capital more efficiently, boosting productivity growth. However, personnel changes are expected to leave the Fed a little more hawkish in 2018, inclined to raise rates sooner rather than later. Some lawmakers want to change the Fed’s directive to inflation only, instead of the current dual mandate of steady prices and maximum sustainable employment.
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