PeopleScout U.S. Jobs Report Analysis — December 2018

The Labor Department released its December 2018 Jobs Report which shows that U.S. employers added 312,000 jobs in December. The unemployment rate increased to 3.9 percent last month. Year-over-year wage growth increased to a 3.2 percent pace as the best rate since 2008. U.S. employers have added to payrolls for 99 straight months, extending the longest continuous jobs expansion on record.

The Numbers

312,000: The economy added 312,000 jobs in December.

3.9%: The unemployment increased to 3.9 percent.

3.2%: Wages increased 3.2 percent over the last year.

The Good

The 312,000 jobs added greatly beat analyst expectations. After revisions to the October and November data, the U.S. added a net 2.64 million payrolls in 2018, the best year for job growth since 2015. Wages, which had been slowing rising for much of 2018, have begun to pick up more quickly. December’s year-over-year increase hit 3.2 percent. While the unemployment rate increased to a five-month high, it is not a cause for concern because the participation rate stands at 63.1 percent and is the highest since September 2017. Reaction to the report has been overwhelmingly positive. As one Bloomberg economist noted:

“This is the strongest employment report of this economic cycle – hands down. While we’ve seen greater job gains in some months, the plus-300,000 number along with another increase in average hourly earnings clearly signals that the economic expansion ended 2018 on strong footing. Perhaps most surprising was the two-tenths rise in the unemployment rate due to an increase in participation. It’s one month of data, but talk of the Fed cutting rates in the near future should be off the table for now.”— Tim Mahedy, Bloomberg Economics

The New York Times reported even more jubilant reaction:

“It’s an unequivocally phenomenal report all the way around,” said Ellen Zentner, chief United States economist at Morgan Stanley. “Anyone that finds something negative in this report is simply cherry picking.”

Economists offered raves that could appear on a movie poster or a book jacket — “Extraordinary!” “Blowout,” “Wow!” The figures, they said, offer a resounding response to the question of whether a recession is imminent: “Never mind!” said David Berson, chief economist of Nationwide. “The fears of the economy tipping into a recession now have clearly been overstated.”

The Bad

While there may be no notable negative points in the jobs report, the U-6, or underemployment rate, was unchanged last month at 7.6 percent. This measure includes part-time workers who want a full-time job and people who are less active in seeking work. This is a possible indication that companies that are contending with a tight talent pool may not be reaching the right part-time workers who would prefer to onboard as full-time workers.

A challenge for employers may be an emerging trend of offering part-time workers the same benefits as full-time employees. Receiving “full-time” benefits can also remove an incentive to look for full-time work.  As the Seattle Times reports:

“Almost half of the 391 companies surveyed by the International Foundation of Employee Benefit Plans now offer the same health insurance coverage for all employees. About a third offer paid maternity or parental leave to their part-time workers, too, the survey found.”

The Unknown

The tight labor market may increase pressure to allow greater immigration to the U.S. or to find a solution that will allow foreign workers to fill the gaps in the country’s workforce. Like the US, Japan is facing a declining birthrate and an aging population which has led to recently passed legislation aimed at attracting foreign workers:

“Japanese lawmakers have passed controversial legislation expanding the number of semi-skilled foreign workers who can live and work in the notably insular nation for up to five years.
Japan has been pressed to make the change because of a critical labor shortage that results from its rapidly aging society and low birth rate.

Japan’s upper house of parliament passed the law 161 to 76 just after 4 a.m. Saturday local time, after a day when the opposition parties tried to unsuccessfully to block the measure.

The law will go into effect in April 2019.

The legislation has been viewed as a last-resort measure by Prime Minister Shinzo Abe’s ultra-conservative government to address a severe shortage of workers in 14 industries, including restaurants, nursing, construction and agriculture.”