December Jobs Report: Tightening Labor Market Pushes up Wages

December Jobs Report: Tightening Labor Market Pushes up Wages

The US economy added 156,000 jobs in December, continuing a trend of steady, albeit not robust, hiring, while the unemployment rate rose slightly from 4.6 percent in November—a nine-year low—to 4.7 percent, the Associated Press reports:

Hourly pay jumped 2.9 percent from a year earlier, the biggest increase in more than seven years. That is a positive sign that the low unemployment rate is forcing some businesses to offer higher wages to attract and keep workers. Sluggish growth in Americans’ paychecks has been a longstanding weak spot in the seven-year economic recovery. For all of 2016, job growth averaged 180,000 a month, down from 229,000 in 2015, but enough to lower unemployment over time.

Weak spots remain in the job market: A smaller share of Americans either have a job or are looking for one than before the recession. That is particularly true for men. … Though the unemployment rate is at a healthy level, the proportion of Americans in their prime working years who are either working or looking for work remains far below its pre-recession level.

The increase in wages is a notable bright spot in an otherwise unremarkable jobs report, the New York Times adds:

“With the unemployment rate down and the labor market tighter, you would expect to see wages move higher, and that’s what the data is showing,” said Michael Gapen, chief United States economist at Barclays. He expects wages to rise by 3.5 percent in 2017, which would be the biggest gain for pay in nearly a decade.

The size of the year’s gain also suggests the uptick in wages is not a fluke but an outgrowth of a labor market in which employers have to pay more to hire and retain workers. A rise in the minimum wage in 19 states on Jan. 1 should provide an additional tailwind for salaries at the bottom end of the wage scale this year.

The Wall Street Journal observes that these numbers are in line with the Federal Reserve’s expectations and will likely encourage the Fed to go ahead with its plans to gradually raise interest rates this year:

Fed officials hope continued wage gains will draw more workers off the sidelines and back into the workforce. The employment report showed slight progress on that front. The share of adult Americans in the labor force—those with jobs or actively looking for work—rose to 62.7% in December from 62.6% in November, still hovering near a four-decade low.

Last month, Fed officials signaled they expect the unemployment rate to settle at 4.8% in the long run, a level that shouldn’t cause inflation to rise or fall. They projected joblessness would be 4.5% by the end of this year and through 2019, a level that they hope will gently push up wages and overall price pressures.

The number of underemployed Americans appears to be declining as well, Bloomberg notes:

Some measures of labor-market slack showed improvement. Americans who are working part time though would rather have a full-time position, or the measure known as part time for economic reasons, fell to 5.6 million. The underemployment rate, which includes part-time workers who’d prefer a full-time position and people who want to work but have given up looking, dropped to 9.2 percent from 9.3 percent.

Meanwhile, a monthly job cuts report from the global outplacement consultancy Challenger, Gray & Christmas found that the number of jobs shed from US payrolls increased from 26,936 in November to 33,627 in December, but overall, 2016 was a year of relatively few layoffs:

December marked the third consecutive month in which job cuts remained significantly below the annual average. In all, just 91,303 planned job cuts were reported in the final quarter of 2016. That is the lowest quarterly total since Q2 of 2000, when employers announced only 81,568 planned layoffs.

Employers announced a total of 526,915 job cuts in 2016. That is 12 percent fewer than the 598,510 cuts tracked in 2015. The 2016 total sits below the 539,581 annual job cuts averaged since 2010, which marked the first year of recovery in the wake of the Great Recession.