US employers added 148,000 jobs in December for a total increase of 2.1 million jobs across last year, according to the latest employment data released by the Bureau of Labor Statistics on Friday. The monthly figure, while still reflecting a strong labor market, was considerably lower than the revised totals of 252,000 and 211,000 jobs added in November and October, respectively. Figures for these months were revised downward by a total of 9,000 in Friday’s BLS report. The annual increase was slightly below the 2.2 million jobs added in 2016. The greatest job gains last year came in the health care, construction, food service, and manufacturing sectors, whereas retail employment declined by 67,000.
The unemployment rate held steady at 4.1 percent, remaining at its lowest level since December 2000 for the third month running. The total number of Americans employed part-time who would prefer full-time work was “essentially unchanged” at 4.9 million in December but down 639,000 for 2017, while the number of long-term unemployed fell by 354,000 over the course of the year to 1.5 million last month. Average hourly earnings rose by 65 cents, or 2.5 percent, over the year.
Economists’ views of what this portends for the coming year differ, based partly on how much impact they think the household and corporate tax cuts passed by Congress last month will have on hiring and consumer spending. “The pace of job creation in 2017 suggests the expansion may have more room to run eight and a half years after the most recent recession ended,” the Wall Street Journal’s Eric Morath writes, while the tax cuts could “turbocharge growth,” as Joseph Brusuelas, chief economist at consulting firm RSM US, puts it. Glassdoor’s chief economist Andrew Chamberlain takes a different view:
With this morning’s December report, the U.S. economy created a total of 2.06 million jobs in 2017. That’s down from 2.24 million jobs created in 2016, and is the slowest pace of overall job creation since the depths of the Great Recession in 2010 — a sign that we are late in the economic cycle, and further job gains will be a challenge in 2018 with the economy already near full employment.
Chamberlain predicts that the tight labor market will cause wage growth to accelerate in 2018 as the economy pushes up against the boundary of full employment. The Federal Reserve has been waiting for these historically low levels of unemployment to push inflation up to its 2 percent target and has at times expressed bemusement that it has not accelerated. The Journal’s Nick Timiraos argues that this report shouldn’t change the Fed’s plans in terms of accelerating or slowing its pace of interest rate increases, but incoming Fed chair Jerome Powell has hinted that he thinks the labor market calls for tightening monetary policy at a faster clip.
Central to the debate over how strong the labor market really is and whether the Fed should shift its focus from employment to inflation is the question of whether the millions of Americans who dropped out of the workforce after the Great Recession can be lured back in. The seasonally-adjusted labor force participation rate held steady throughout the year, beginning and ending 2017 at 62.7 percent. As the Washington Examiner’s Joseph Lawler explains, “Republicans are betting that there are many such people on the margins of the labor force who could still come in”:
The evidence for that proposition is that the labor force participation rate hasn’t budged in over four years, despite the aging of the population, suggesting that there is now pressure for some people to remain in the job search. At 62.7 percent, labor force participation was just one tenth of a percentage point lower than it was in October of 2013. Another key piece of evidence is that job growth has remained strong and wage growth low even as the unemployment rate has dropped to historically low levels.
The evidence against the idea that there are many sidelined people who’d be interested in work is that, in some parts of the country and some industries at least, employers are increasingly having difficulty finding people to fill positions.
Charles Lieberman, chief investment officer and founding member at Advisors Capital Management, counters this theory in an op-ed at Bloomberg View, arguing that the data paint a consistent picture of a very tight labor market:
Data on job openings show more than 6 million vacancies, which is an all-time high since the survey was introduced in 2001. This is corroborated by household sentiment surveys, which report jobs are plentiful.
Data on quits also supports the thesis that jobs are abundant. Workers do not quit their current jobs if they think finding another will be difficult. Symmetrically, firms are now reluctant to fire workers. They recognize that a fired worker may be difficult to replace. So, initial unemployment claims have declined to around 225,000, the lowest level in this series going back to the 1970s, even though the labor market is now more than 50 percent larger. All these reports provide a coherent data-based body of evidence that points uniformly to a scarcity of labor.