The US Labor Department reported little change in the unemployment or employment rates in December, as job growth slowed slightly to 156,000 in the month. The unemployment rate edged up from 4.6 percent to 4.7 percent, but this is well within the margin of error of the survey. The overall employment-to-population ratio (EPOP) remained unchanged at 59.7 percent. The same is true for the EPOP for prime-age workers, which remained at 78.2 percent for the third consecutive month. This is more than 2 full percentage points below the pre-recession peak and almost four percentage points below the 2000 peak.
The December job growth was somewhat below the 180,000 average over the last year. Although the falloff is not an obvious cause for concern and the economy is clearly getting closer to full employment, there are aspects of the payroll survey that are disconcerting.
Some of the job gains reported in December are obvious anomalies that will be reversed in future months. The number of couriers jumped by 11,700 in December. This sector often has large jumps, which are always reversed in later months. Similarly, the number of people employed in social assistance rose by 20,100. This sector also tends to have erratic jumps that are reversed.
On the other side, the number of people employed in professional and technical services increased by just 6,600 in December, compared to an average monthly change of 23,400 over the last year. These tend to be good-paying jobs so slower growth in the sector would be bad news. Also, temporary help employment fell by 15,500, although this followed a large jump in November.
The big job gainers were health care, which added 43,200 jobs, slightly above its 35,200 average for the last year, and restaurants, which added 29,600 jobs, slightly above its 20,550 average over the last year. Manufacturing employment rose by 17,000 but is still down by 45,000 from its year-ago level. The recent run-up in the dollar is likely to be bad news for this sector in 2017. While manufacturing employment has been falling as a share of total employment since the sixties, the sharp plunge in this century was due to the explosion of the trade deficit.
The average hourly wage is up by 2.9 percent both year-over-year and comparing the last three months with the prior three months. However, it is important to remember that compensation is being shifted from benefits to wages, so total compensation growth is slower.
It is also worth noting that average weekly hours are lagging, with the aggregate weekly hours index for December the same as the October level and just 1.0 percent above the year-ago level. This is not a pattern that would be expected in a tight labor market.
The other news in the household survey was generally positive. Involuntary part-time employment continues to edge down, while more people are choosing to work part-time. The number of people working part-time, for economic reasons, fell slightly to about 5,600,000 in December. It is now down by almost 2.2 million from December of 2013, before the key provisions of the Affordable Care Act (ACA) took effect. By contrast, the number of people choosing to work part-time has continued to rise, presumably because they no longer need to get insurance from their employer. It now stands just over 21,250,000, or more than 2.4 million above its pre-ACA level. The number of self-employed is up by 890,000 or just over 6.0 percent.
Less encouraging is a drop in the share of unemployment due to voluntary quits from 12.5 percent to 12.0 percent, although the share of long-term unemployment fell to 24.2 percent, a new low for the recovery.
By education levels, we continue to see the less educated improving relative to college grads. The EPOP for college grads actually fell 0.3 percentage points from 2015 to 2016. It is up by 0.4 percentage points for workers with just a high school degree.
On the whole, the December report indicates the labor market is continuing to strengthen as even the slower pace of job growth is certainly faster than the 80,000 to 90,000 per month we might expect from demographics. However, the decline in average hours over the last year strongly argues against the claim that the labor market is overly tight and that we need be concerned over building inflationary pressures.