HFF Analysis of the December 2017 BLS Employment Report

Monday, January 8, 2018

HFF is pleased to report on the latest employment expansion statistics from December 2017. 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

The U.S. added a lower than expected 148,000 jobs in December, and November figures were revised upward to 252,000 from 228,000. December’s figures brought employment gains for the year to 2.1 million. It is only the second time on record – the other being in the 1990s – when the economy has produced jobs at that pace for that long. 

Payroll creation has averaged 196,930 since October 2010, marking the 87th month of consecutive growth. The period of monthly gains is about three years longer than the prior longest streak, which was from 1986 to 1990. The Unemployment Rate remained unchanged for the third straight month at 4.1 percent, the lowest level since December 2000. Recent economic data suggests the economy is preparing for the impending corporate tax cuts that will affect growth in the near term, which could stimulate consumer spending and business investment.

Wage growth registered 2.5 percent in December. Modest wage growth is one factor that is expected to keep the Fed restrained as it raises short-term interests rates in the months ahead.

Average Monthly Payroll Creation Slowing

Current expansion cycle similar to the one from 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.

Attractive Job Growth Cooling

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. Professional Business Services, the industry sector most closely aligned with office using employment, experienced expansion of 544,000 jobs in the year ending December 2017.

Fortunately, Temporary Staffing only accounted for 111,000 (approximately 20 percent) of these positions. Temporary Staffing is slowing, however, which implies 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 460,000 jobs in the year ending December 2017. Mining and Logging continues to undermine headline growth but continued to grow positive this month with approximately 61,000 jobs being added in the year ending December 2017. 

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 remained unchanged for the third month in a row at 4.1 percent in December, the lowest level since December 2000. The Underemployment Rate came in at 8.1 percent in December, a 10 basis point increase from the prior month.

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 2.5 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).

Sources: HFF Research, Bureau of Labor Statistics, Department of Labor, Bloomberg

Prepared by HFF Research Analysts Aziza Rehmatulla and Morgan Allen and HFF Managing Director of Research Jimmy Hinton

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