A Solid Gain For December Payrolls

The US labor market posted another healthy increase last month, the government reports. Private-sector payrolls increased 240,000, a bit more than economists were forecasting (but slightly below The Capital Spectator’s median prediction). Although December’s advance was well below November’s increase (+345,000 for the private sector), today’s release still looks encouraging. Indeed, when you strip out the monthly noise and focus on the year-over-year change for private payrolls, the numbers look quite cheery. Indeed, the labor market last month grew at the fastest pace (+2.48%) in nearly two years, based on annual growth in workers at US companies.

Positive momentum, in short, is very much alive when it comes to the economy’s capacity to mint new jobs. Indeed, the annual pace has been improving steadily for much of the past year (black line in chart below). The deflationary winds in Europe may bring trouble for the US in the months ahead, but at the moment it’s reasonable to assume that any blowback will be limited. Why? The US macro trend is enjoying a degree of acceleration, which will likely provide some security if the economic waters turn rough later this year.


“The economy has some momentum,” Robert Shapiro, chairman of Sonecon, told The New York Times ahead of today’s release. “I think [the economy] kind of hit a stride with respect to job creation.” Michael Feroli at JP Morgan agrees, advising via Bloomberg that “we have continued, solid job growth. It shows really solid momentum in U.S. growth.”

As I discussed earlier today, the US may be on the cusp of a golden period for growth. The combination of low interest rates and inflation, combined with what now looks like a sustainable run of employment growth and sharply lower energy costs, is a bullish recipe. The future’s as uncertain as ever, of course, but for the moment the macro trend for the US looks poised for a bullish phase for the foreseeable future.

Nothing’s perfect, however, and today’s jobs data is no exception. Indeed, the numbers du jour tell us that wage growth is still tepid at best. That’s not surprising given the low level of inflation these days. Nonetheless, average hourly wages for American workers overall slipped 0.2% last month, according to today’s update. That translates into a 1.7% annual gain, the lowest in more than two years. That’s good news for Corporate America, but it’s a headwind for the average American.

Disinflation/deflation is a problem, of course, but it’s little more than a minor irritation so long as the US economy is growing and payrolls are expanding. As such, today’s data is, on balance, a convincingly positive signal.

Will the signals remain positive? There’s no hard data to suggest otherwise, although the outlook, as always, is a dynamic beast. To the extent that the future outlook will change, for good or ill, the source for revising expectations arrives one data point at a time. On that note, next week brings several critical updates for December, including retail sales (Wed, Jan. 14) and industrial production (Fri., Jan. 16). Anything’s possible, of course, but based on what we know today there’s a good case for expecting that the upbeat trend will remain intact through next week’s release schedule. Macro momentum, good or bad, isn’t written in stone, but it rarely turns on a dime.

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