 | Nonfarm Payrolls Increased 252,000 in December |
|
| Posted Under: Data Watch • Employment |
Implications: Another very good report on the direction of the labor market. Nonfarm payrolls increased 252,000 in December and were revised up 50,000 for prior months, with all of the upward revision coming from the private sector. Overall, nonfarm payrolls grew 2.95 million in 2014, the best year since 1999. Meanwhile, the unemployment rate fell to 5.6%, the lowest so far in the recovery and barely above where the Federal Reserve pegs the long-term average in a "normal" economy. In a way, today's report is the labor market in a nutshell: where employers still have wide discretion, like hiring, payrolls are increasingly rapidly. Where government interference is receding things are getting better. Extended unemployment benefits ended at the start of 2014 and right on cue the median duration of unemployment plummeted, ending the year at 12.6 weeks versus 17.0 weeks a year ago. That drop of 4.4 weeks is the largest in any calendar year on record. But, where the government is still interfering with the labor market, we have stagnation. So, for example, the new health care system is forcing companies to spend more on health care, which means less money left for higher wages – despite the big drop in the unemployment rate, wages are up a tepid 1.7% (not including fringe benefits like health care or tips, irregular bonuses, or commissions). Meanwhile, on top of an aging population we have easily obtainable disability benefits and overly generous aid to students, so the labor force participation rate remains at the lowest level since New Yorkers were lining up for Studio 54. This combination of freedom and government interference is why the economy is still a Plow Horse. What's notable is that taking all this into consideration, the economy looks OK. Although average hourly wages fell 0.2% in December, we aren't worried about workers' purchasing power. It looks like consumer prices fell about 0.4% in December, so "real" (inflation-adjusted) earnings were likely still up. Also, even without adjusting for prices, total hours were up in December, so total cash earnings were unchanged in December and up 5% from a year ago. Despite modest inflation, the strength in the labor market supports our forecast that the Fed will start raising short-term rates in the second quarter. Nonfarm payrolls increased 246,000 per month in 2014 while civilian employment, an alternative measure of jobs that includes small-business start-ups rose 231,000 per month. We expect even more job growth, less unemployment, and (finally!) faster wage growth in the year ahead.
Click here for PDF version
|
|