US companies added 144,000 workers to payrolls in December, well below the 198,000 advance in November, the Labor Department reports. The softer increase was conspicuous in the year-over-year trend too, reaffirming what’s been clear for some time: the labor market’s well past its peak for this point in the cycle as job creation continues to shift into lower gear.
The high water mark for annual growth since the recession ended in 2009 is February 2015, when private payrolls gained 2.58% vs. the year-earlier level. Those days are long gone: companies increased the workforce by 1.63% last month vs. a year ago—the slowest annual increase in more than five years.
The good news is that the weaker growth trend appears relatively stable, which is to say that the decline is gradual. At some point, the slide will start to pinch, raising questions about recession risk. But if recent history’s a guide, the decline can roll on, perhaps well into next year, without triggering a conspicuous warning signal for the business cycle. But when and if we reach the point where the labor market’s growth is below roughly 1% a year, the outlook for the macro trend will suffer.
Meantime, slow growth prevails, and for the moment there’s no reason to assume that the expansion won’t endure. The rebound in wage growth last month, in fact, inspires some analysts to argue that the year ahead looks brighter than the year-over-year trend in payrolls implies.
“It’s a very strong job market overall,” says Scott Brown, chief economist for Raymond James Financial. “There’s a further tightening in labor market conditions. Wage pressures are certainly building, and we should continue to see further upward pressure this year.”
The wild card is the incoming Trump administration, which is planning on rolling out a new set of policies that cut taxes, reduce regulation, and introduce infrastructure spending projects. Does it all add up to stronger economic growth? If so, will growth in the labor market re-accelerate?
It’s too early to rule out that possibility, suggests Jim Baird, chief investment officer for Plante Moran Financial Advisors. “Job creation and overall labor market conditions remain solid,” he says via Reuters. “With the potential for stronger fiscal stimulus in the form of infrastructure spending and tax cuts, job creation appears likely to remain on a solid footing in 2017.”
For now, the forward momentum for jobs growth is looking a bit long in the tooth. It’s still a healthy pace, but slower job growth will take a toll… eventually, leaving the economy increasingly vulnerable to any setbacks that pop up. But with a White House turnover in the works, the question is whether Trump and company can bring salvation to an aging expansion?