The Jobs Recovery Isn’t Over

by Bob Stein

The labor market surprised to the downside in December, with slower growth in payrolls, a decline in total hours worked, and only a small increase in wages that likely lagged inflation for the month. Payrolls increased 74,000 versus a consensus expected 197,000 (First Trust was forecasting a comparatively low 150,000).

However, this does not mean the jobs recovery is over. Payroll growth was stronger than originally expected in August, September, October, and November, so getting one month to the downside does not make a new trend.

In addition, the Labor Department says 273,000 workers were unemployed in December due to unusually severe weather in the survey week. This is the most for any December since 1977. For comparison, in the past ten years, on average, 138,000 workers have been out of work due to weather in December. These figures are from the civilian employment survey, not the payroll survey, but hint at a sharp rebound in job growth in January. Despite the weather issue, civilian employment was up 143,000 in December. It’s early, but we expect payrolls to grow roughly 200,000 in January. Also, don’t be surprised if December payrolls are revised up next month; December 2012 was originally reported at 155,000 and later revised to 219,000.

The bright spot in today’s report was the decline in the jobless rate to 6.7 percent. However, much of the decline was due to a drop in labor-force participation. Most of the drop in the jobless rate in the past year is due to job growth, but some of it is due to lower participation.

In terms of the details of the report, although total hours were down in December and average hourly earnings rose only 0.1 percent, they are up a combined 3.4 percent versus a year ago, which means consumer incomes are still rising. This is more than enough for workers to keep pushing up spending, particularly in an environment where consumers’ financial obligations are low relative to income.

The labor market could and would be doing better with a better set of public policies. But it is still improving. In the past year nonfarm payrolls have grown at an average monthly rate of 182,000 while civilian employment is up 96,000 per month. Over time, we expect these two rates of job growth to converge and think the pace of growth in civilian employment is likely to accelerate.