Best of U.S. Labor Market May Be Over With Hiring, Wages Cooling
Best of U.S. Labor Market May Be Over With Hiring, Wages Cooling
(Bloomberg) -- The U.S. labor market remains historically strong, but signs of slowing are becoming more apparent.
Friday’s jobs report for December showed payroll gains cooled in December by more than forecast, wages rose at the weakest annual pace since 2018 and weekly hours worked matched the lowest level since 2017. While unemployment held at a half-century low of 3.5%, the U.S. added the fewest jobs in a full year since 2011, and analysts expect further moderation in 2020 as President Donald Trump seeks re-election.
The December report sets a “softer but still healthy tone for the labor market and economy in 2020,” said Lydia Boussour, senior U.S. economist at Oxford Economics. “This is a realignment in the trend of job creation.”
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Even so, the figures were enough to keep U.S. stocks trading near a record high on Friday, with Federal Reserve policy makers expected to hold rates steady amid muted inflation. Treasury yields and the dollar were lower.
The report “does not change anything as far as the Fed goes,” FS Investments Chief U.S. Economist Lara Rhame said on Bloomberg Television.
Hiring Pace
Most economists expect the pace of hiring to moderate further this year but still remain above the rate needed to accommodate population growth. There are multiple factors that will weigh on hiring including narrowing corporate profit margins and a shrinking pool of available workers as well as uncertainty stemming from trade, geopolitics and a presidential election.
The significant pullback in wage gains further speaks to this moderation. Average hourly earnings came off a higher-than-expected figure in November, but the miss suggests the labor market may not be as tight as the unemployment rate indicates. After peaking in February, the trend in wage gains has gradually decelerated after years of consistent acceleration.
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“It’s a real question why wages haven’t accelerated more,” said Jay Bryson, acting chief economist at Wells Fargo & Co. “Part of it may be just due to the underlying fact that inflation expectations among folks just remain very, very low.” Even so, more broadly, “the labor market remains solid at this point.”
Overall, last year’s job gains were solid at 2.11 million but significantly cooler from the prior year’s 2.68 million and marked the slowest since 2011. The strength of the labor market will also factor into Trump’s re-election chances in November, with the president repeatedly touting economic gains as a reason he deserves a second term.
What Bloomberg’s Economists Say
“While the rate of hiring is due to moderate over the course of 2020, it is still running at a pace sufficient to drive unemployment lower. This should help to stabilize the aggregate income deceleration vis-a-vis moderately firmer wage pressures, even though the latest average hourly earnings data continued to show muted labor inflation.”
-- Carl Riccadonna, Yelena Shulyatyeva and Andrew Husby
Click here for the full reaction note.
Wages for production and nonsupervisory workers rose 3% in December from a year earlier, slowing sharply from the decade-high 3.6% pace in October and potentially throwing cold water on the idea that lower-level employees were seeing bigger gains. On a monthly basis, average hourly earnings increased by 0.1% in December, missing estimates for a 0.3% gain.
White House economic adviser Larry Kudlow addressed the slowdown on Bloomberg Television. “The fact remains that the production workers and the service workers gains in wages continue to outstrip the gains of their managers,“ he said.
One bright spot was the U-6, or underemployment rate, which fell to 6.7%, a record low in data back to 1994. Some analysts see this as a more accurate reflection of the true labor market as it includes part-time workers who’d prefer a full-time position and those who aren’t actively looking.
On the down side, manufacturers cut payrolls by 12,000 in December, compared with estimates for a gain. And looking at the year more broadly, factories added 46,000 jobs, which was the second-worst, full-year reading of the last decade’s expansion.
--With assistance from Chris Middleton, Benjamin Purvis, Alex Tanzi, Max Reyes and Vince Golle.
To contact the reporter on this story: Reade Pickert in Washington at epickert@bloomberg.net
To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Margaret Collins
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