The US labour market turned in a solid performance at the end of 2016, putting job gains above 2 million for a sixth year as paychecks rose by the most during the current expansion.
The 156,000 increase in December payrolls followed a 204,000 rise in November that was bigger than previously estimated, a Labour Department report showed Friday in Washington. The median forecast in a Bloomberg survey of economists called a 175,000 advance. The jobless rate ticked up to 4.7 per cent as the labour force grew, and wages rose 2.9 per cent from December 2015.
Worker shortages may become more frequent in the coming year, which means employers could have to give out bigger wage hikes even as hiring cools. That would buoy consumer spending and underscore the case for the Federal Reserve to raise interest rates several more times in 2017, as policy makers deem the situation at or close to full employment. Treasuries fell and the dollar strengthened following Friday’s report.
“It’s a very strong job market overall,” said Scott Brown, Florida-based chief economist for Raymond James Financial Inc., who projected a 155,000 gain in payrolls. “There’s a further tightening in labour market conditions. Wage pressures are certainly building, and we should continue to see further upward pressure this year.”
As the Fed looks for signs of faster inflation, wages are showing their fastest gains since the last recession ended. Average hourly earnings advanced by 2.9 per cent over the 12 months ended in December, the most since June 2009, following a 2.5 per cent boost the prior month. Compared with November, worker pay increased 0.4 per cent.
“That’s a very decent report,” Cleveland Fed President Loretta Mester told Fox Business Network in an interview after the report was released. “We’re basically at full employment.”
The December results were helped by more hiring in healthcare and social assistance, whose gain of 63,300 workers was the most since October 2015. Factories added employees, along with leisure and hospitality businesses.
Revisions to prior reports added a total of 19,000 jobs to payrolls in the previous two months.
The latest payrolls tally brought the advance for 2016 to 2.16 million, after a gain of about 2.7 million in 2015. The streak of gains above 2 million is the longest since 1999, when Bill Clinton was president.
December payroll estimates of economists surveyed by Bloomberg ranged from gains of 125,000 to 221,000. November was initially reported as a 178,000 increase.
The unemployment rate, which is derived from a separate Labour Department survey of households, rose 0.1 percentage point as employment increased by 63,000. The jobless rate matched the median estimate in a Bloomberg survey.
Also on Friday, the Labour Department released revisions dating back to 2012 for data from the household survey, including the unemployment rate. October’s rate was revised to 4.8 per cent from 4.9 per cent and September’s was lowered to 4.9 per cent from 5 per cent.
Payroll figures from the survey of employers will be revised when the January data are released next month.
Among the details of the December report, the participation rate, which shows the share of working-age people in the labour force, increased to 62.7 per cent, from 62.6 per cent. It has been hovering close to the lowest level in more than three decades.
Private employment, which excludes government agencies, rose by 144,000 after a 198,000 increase the prior month. Government employment rose by 12,000.
Factory payrolls gained by 17,000, after a 7,000 decline in the previous month.
Compared with manufacturers, service providers including restaurants, business services and health-care providers are typically less exposed to headwinds such as the stronger dollar and overseas economies.
Retailers increased payrolls by 6,300. Employment in leisure and hospitality rose by 24,000.
Barclays economists Rob Martin and Michael Gapen found the employment figures to be “somewhat softer than we had anticipated,” owing to “tepid” growth in services employment. They cited a slowdown in retail and business and professional services, and declines in temporary help and department stores.
The average work week for all workers was unchanged at 34.3 hours.
Some measures of labour-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 per cent from 9.3 per cent.
At the Fed’s December meeting, where the central bank raised interest rates by a quarter per centage point, officials noted that the job market had improved appreciably over the past year and slack had declined. Most participants viewed the cumulative progress as “having brought labour market conditions to or close to those consistent with the Committee’s maximum-employment objective,” according to minutes of the session, released Wednesday.
“We expect unemployment will keep falling and wage gains will continue to accelerate in the year ahead, putting pressure on the Fed to keep tightening,” Jim O’Sullivan, chief US economist at High Frequency Economics in Valhalla, New York, said in a note.
The acceleration in worker pay may have, in part, reflected the unwinding of a calendar quirk that subdued the November tally. Because the 15th of the month fell within the employment survey week, increases in bi-monthly pay are more likely to have been captured.
The slowdown in payroll gains in December may have resulted from weather effects, judging from data on the number of non-farm workers with a job who didn’t work because of bad weather, according to O’Sullivan.
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