HFF Analysis of the December 2016 BLS Employment Report

Tuesday, January 10, 2017

HFF is pleased to report on the latest employment expansion statistics from December 2016. Our research team analyzes trends and data to give readers a better view into the current state of the economy and how employment is being affected.

Employment Expansion

U.S. job growth slowed down in December as nonfarm payrolls rose by 156,000. In 2016, the U.S. labor market added 2.16 million jobs, putting job gains at about two million for the sixth year in a row. Wages rose 2.9 percent, the best annual gain in more than seven years. Payroll creation has averaged 200,000 since October 2010, marking the 75th month of consecutive growth. The labor force participation rate moved up to 62.7 percent in December, from 62.6 percent the prior month and continues to hover near a four-decade low. The unemployment rate ticked up to 4.7 percent in December, but remains historically low.

Average Monthly Payroll Creation Slowing

The current expansion cycle is similar to 1991 to 2000 and greater than the 2004 to 2007 expansionary period, but only after a significantly delayed recapture of the nation’s previous employment peak.

The U.S. created 2.16 million jobs in 2016, the smallest gain for a calendar year since 2011. The last six years’ job growth is on par with the expansionary period from 1992 to 1995.

In 2016, the U.S. created 2.16 million jobs. But nearly 32 percent of private-sector job gains came from construction, manufacturing, retailers, hotels, restaurants and temporary help agencies, all typically low-paying sectors. Combined, Retail Trade (257,000) and Leisure and Hospitality (295,000) created approximately 552,000 jobs in the year ending December 2016, accounting for some 26 percent of the headline growth nationwide.

Retail Trade accounts for 69 percent of the headline Trade, Transportation and Utilities growth. We can therefore assume continued broad-based growth in the retail and industrial property types as we progress deeper into the economic recovery. Professional Business Services, the industry sector most closely aligned with office using employment, experienced expansion of 522,000 jobs in the year ending December 2016.

Fortunately, Temporary Staffing only accounted for 23,000 (approximately four percent) of these positions. Temporary Staffing is slowing, however, implying hesitance in hiring the lowest cost employees companies can find in tentative expansions. Education and Health Services, which has performed well throughout the downturn being a recession-resistant industry, expanded by 593,000 jobs in the year ending December 2016, the highest of any major employment sector. Mining and Logging and Manufacturing continue to undermine headline growth with approximately 80,000 jobs being lost in the year ending December 2016.

Unemployment Rate

The Underemployment Rate augments the Unemployment Rate to include anyone marginally attached to the Labor Force that is either not employed or employed only Part Time. Fortunately, the Underemployment Rate has descending from a recent high of just over 17 percent. However, the spread between the two rates is near an all-time high and shows no sign of rapid compression. The unemployment rate ticked up to 4.7 percent in December, but remains historically low. The underemployment rate fell to 9.2 percent in December, the lowest level since April 2008.

Wage Growth

As the labor force approaches “full employment”, much attention has been cast to wage growth. The past three recessions were preceded by a period of FOMC tightening. Average hourly earnings growth exceeded four percent in each of these periods as overall economic activity became reflected in strong wage growth. With the current year-over-year percent wage growth registering approximately 2.9 percent, one could argue overall economic activity has not yet reached levels that precede recessionary periods (often accompanied if not triggered by FOMC tightening to counter inflationary forces).

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