Notes on the December 2019 U.S. Employment Situation: U-Rate 3.5%; Payrolls +145,000

OVERVIEW

• The unemployment rate remained at 3.5 percent in December with payrolls expanding by 145,000 jobs, according to the Bureau of Labor Statistics. 
• The Labor Force Participation (LFP) was unchanged little at 63.2 percent. The Employment-Population ratio also remained at 61.0 percent for the fourth consecutive month.
• Notable job gains took place in Retail (+41,000) and Health Care (+28,000).
• Employment in Leisure and Hospitality continued to rise consistent with year-over-year trends. In 2018, the sector added 359,000 jobs; in 2019 it added 388,000 jobs.
• According to the BLS, the following sectors saw little or no change in December: Wholesale Trade, Information, Financial Activities and Government.
• Unemployment among the major worker groups remained low and generally unchanged.
• Over the year, average hourly earnings have increased by 2.9 percent. In December, the average hourly private non-farm wage rang in at $28.32. The average workweek for all employees was unchanged at 34.3 hours.
• The number of persons employed part-time changed little in December at 4.1 million.
• The number of long-term unemployed (27 weeks or more) remained at 1.2 million in December. Meanwhile, those workers who are “marginally attached to the labor force” fell by 310,000.
• Revisions for the previous two months pushed the original estimates downward. The payrolls report for October was revised down by 4,000 from +156,000 to +152,000 and the change for November was revised down by 10,000 from +266,000 to +256,000. After revisions job gains have averaged 184,000 over the last three months.

ANALYSIS

Is the U.S. job creation machine running out of gas? And has wage growth taken a pause? In 2019, payroll employment rose by 2.1 million down from again of 2.7 million in 2018 even as the unemployment rate fell from 3.9 percent in 2018 to 3.5 percent in 2019, entering the record books as a half-century low. 

Key sectors may underlie the possible slowdown. Construction employment changed little in December: up 20,000. Notable however, is that employment in the sector rose by 151,000 in 2019, about half of the 2018 gain of 307,000. Manufacturing was also little changed in December +12,000. Specifically, Manufacturing changed little in 2019; +46,000 compared to the solid 264,000 figure in 2018. Mining, which covers the volatile oil extraction sector, declined by 8,000 in the month; it declined 24,000 after rising by 63,000 in 2018.

Earlier in the week, ADP, the payroll firm, reported a gain of 202,000 private sector jobs. Today the BLS reported a gain of 139,000. The revisions in today’s report put a dent in last month’s stellar print. Revisions for the two previous months took 46,000 jobs out of the original, rosier estimate. Wall Street expected a payroll increase of about 160,000 jobs. Average hourly earnings slowed down in December rising 3 cents.

Still, the report was good enough to Lawrence Kudlow, director of the U.S. National Economic Council. Citing an expected trade deal with China, improving business confidence and the stock market, Kudlow remained optimistic. He told Bloomberg, “the fact remains that the production workers’ and the service workers’ gains in wages continue to outstrip the gains of their managers.” Excluding the Natural Resources and Mining sector, an outlier, Retail Trade wages grew the fastest at 4.2 percent (See Table 1). And while the Construction and Manufacturing sectors generated fewer jobs in December, wages in both sectors continued to grow.