US nonfarm payrolls rose by 156,000 jobs in December 2016
Data released by the Labor Department on Friday, January 06th, 2017, showed that US employment grew less than expected 178,000 jobs in December 2016. However, a rebound in wages reflects a sustained labor market momentum that sets up the economy for stronger growth and further interest rate hikes from the Federal Reserve in 2017. Nonfarm payrolls rose by 156,000 jobs in December 2016, more than sufficient to absorb new entrants into the labor market. Fed Chairperson Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with growth in the work-age population. Employers hired 19,000 more workers than previously reported in October 2016 and November 2016. Overall, the US economy created 2.16 million jobs in 2016.
Average hourly earnings increased 10 cents or 0.4% in December 2016 after slipping 0.1% in November 2016. That pushed the Y-o-Y increase in earnings to 2.9%, the largest gain since June 2009, from 2.5% in November 2016.
The data also showed that the unemployment rate ticked up to 4.7% from a nine-year low of 4.6% in November 2016. It however remained below 4.8%, the Fed’s estimate of the natural rate of unemployment, for two straight months. A broader measure of unemployment that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell one-tenth of a percentage point to 9.2%, the lowest rate in over 8-1/2 years.
In all, job growth during December 2016 was spurred by hiring in the health care and social assistance sectors. Job growth totaled 2.2 million in 2016, less than the increase of 2.7 million in 2015. Over the past three months, job gains have averaged 165,000 per month. Employment growth in 2016 averaged 180,000 jobs per month, down from an average gain of 229,000 per month in 2015. The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, rose one-tenth of a percentage point to 62.7% in December 2016.
Job growth led by Heath Care hiring
Employment in health care rose by 43,000 in December 2016, with most of the increase occurring in ambulatory health care services (+30,000) and hospitals (+11,000). Health care added an average of 35,000 jobs per month in 2016, roughly in line with the average monthly gain of 39,000 in 2015. Social assistance added 20,000 jobs in December 2016, reflecting job growth in individual and family services (+21,000). In 2016, social assistance added 92,000 jobs, down from an increase of 162,000 in 2015. Employment in food services and drinking places continued to trend up in December (+30,000). This industry added 247,000 jobs in 2016, fewer than the 359,000 jobs gained in 2015.
Employment also continued to trend up in transportation and warehousing in December 2016 (+15,000). Within the industry, employment expanded by 12,000 in couriers and messengers. In 2016, transportation and warehousing added 62,000 jobs, down from a gain of 110,000 jobs in 2015. Employment in financial activities continued on an upward trend in December (+13,000). This is in line with the average monthly gains for the industry over the past two years.
In December 2016, employment edged up in manufacturing (+17,000), with a gain of 15,000 in the durable goods component. However, since reaching a recent peak in January, manufacturing employment has declined by 63,000. Data from the Institute for Supply Management (ISM) on released on January 03rd, 2017 showed that US manufacturing expanded at the fastest pace in two years in December 2016, reflecting stronger output and a surge in new orders since August 2009. US manufacturing remained upbeat despite a stronger dollar, which is expected to hurt exports to some extent. ISM stated that its index of national factory activity increased to 54.7, the fourth straight monthly advance, from 53.2 in November 2016, and the highest since December 2014. A reading above 50 indicates an expansion in manufacturing, which accounts for about 12% of the US economy.
Employment in professional and business services was little changed in December 2016 (+15,000), following an increase of 65,000 in November 2016. The industry added 522,000 jobs in 2016. Employment in other major industries, including mining, construction, wholesale trade, retail trade, information, and government, changed little in December 2016.
Trump, who is set to assume office on January 20th, 2017, has proposed an expansionary fiscal policy stance, which could increase the budget deficit. That, together with faster economic growth and a labor market that is expected to hit full employment in 2017, could raise concerns about the Fed falling behind the curve on interest rate increases. The US central bank raised its benchmark overnight interest rate last month by 25 basis points to a range of 0.50% to 0.75% and forecast three rate hikes in 2017.