U.S. payrolls rose by 148k in December, disappointing survey expectations for 190k. Private-sector hiring expanded by 146k, below the consensus for 193k. Government payrolls edged up by 2k.
Goods-producing employment rose strongly in December, up 55k and led by a 30k gain in construction employment. Manufacturing employment also did well, rising by 25k. Services employment, on the other hand, decelerated to 91k from 176k in November.
Revisions were relatively minor, subtracting 9k from payrolls in November and October on net. However, the pattern of growth was reversed with November revised up (to 252k from 228k) and October revised down (to 211k from 244k).
The unemployment rate was unchanged at 4.1% in November. Household survey employment rose 104k, while the labor force expanded by 64k.
Average hourly earnings were up a relatively strong 0.3% in December and accelerated to 2.5% year-over-year (from a downwardly revised 2.4% in November).
For 2017 as a whole, the U.S. economy created just under 2.2 million jobs (December to December) slightly above its 2016 performance of 2.1 million. The unemployment rate fell 0.6 percentage points (from 4.7% last December), double the pace of decline in 2016.
Key Implications
The headline may have disappointed, but 148k jobs is a respectable rate of job growth for an economy at this stage of the cycle. As the labor market approaches full employment, analysts will have to adjust down the rate of job growth the economy can achieve. Maintaining a pace of 150k jobs a month would still be sufficient to put downward pressure on the unemployment rate.
Indeed, the challenge in 2018 will be how to continue to add jobs when there are fewer people looking for them. The low unemployment rate should mean faster wage growth as employers offer higher compensation in order to attract and retain talent. They will have more room to do so with the cut in the corporate tax rate.
Still, the rise in pay for those joining and staying in the labor force may not be immediately apparent in aggregate wage data, offset in part by slower wage growth among older worker and the replacement of retiring workers at the top of the pay scale with those joining at lower entry level wages. Ultimately, this may keep the focus on the underlying consumer inflation rate. Should it remain stubborn, the Fed is likely to continue to let the labor market run hot.
