HFF Analysis of the December 2018 BLS Employment Report

Friday, January 4, 2019

HFF is pleased to report on the latest employment expansion statistics from December 2018. 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 considerably higher than expected 312,000 jobs in December. Figures were revised upward to 176,000 in November and upward to 274,000 in October, a net revision of 58,000. Payroll creation has averaged around 200,000 since October 2010, marking the 99th month of consecutive growth. The period of monthly gains is around four years longer than the prior longest streak from 1986 to 1990.

Unemployment rose slightly to 3.9 percent from 3.7 percent in November, which was its lowest level since December of 1969. Unemployment has now been below five percent for 27 consecutive months and below four percent for six consecutive months.

Wage growth came in at 3.2 percent, its highest level since 2009. The labor force continued to grow with 419,000 people joining in December of 2018, while the labor participation rate increased as well from 62.9 percent to 63.1 percent, its highest level in 2018.

This particularly strong employment report beat consensus expectations by a considerable margin and may help ease concerns about the economy as well as improve investor sentiment.

Average Monthly Payroll Creation Steady

The current expansion cycle is 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.



Job Growth Steady and Strong in 2018

The U.S. created 2.18 million jobs in 2017 and 2.64 million in 2018. The last six years’ job growth is on par with the expansionary period from 1992 to 1995.



Job Growth Positive in Almost All Major Job Sectors

Again, the U.S. created 2.18 million jobs in 2017 and 2.64 million jobs in 2018; however, in both years, around 40 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 583,000 jobs, a year-over-year growth rate of 2.8 percent, above the five-year average growth rate of 2.5 percent. Temporary Staffing accounted for 99,000 (approximately 17 percent) of these positions.

Education and Health Services, which has performed well throughout the downturn being a recession-resistant industry, expanded by 517,000 jobs in the year ending December 2018. Construction added 280,000 jobs (up four percent year over year) in the year ending December 2018. Comparing this, construction added 250,000 jobs (up 3.7 percent) 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. The Unemployment Rate rose to 3.9 percent in December 2018, marking the 27th consecutive month below five percent. The Underemployment Rate remained at 7.6 percent in December 2018.

Fortunately, the Underemployment Rate has continued its descent from a 2009 high of just over 17 percent. The spread between the two rates is at 370 bps and has been compressing gradually having reached a high of 740 bps in September of 2011.



Wage Growth

As the labor force approaches “full employment”, much attention has been cast to wage growth. The current year-over-year wage growth rose to 3.2 percent in the year ending December 2018, the highest rate seen since 2009. The past three recessions were preceded by a period of FOMC tightening, which align also with an average hourly earnings growth in excesses of four percent reflecting strong economic activity overall.



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

Prepared by HFF Research Analysts Laura Bancroft and Morgan Allen and HFF Managing Director of Research Jimmy Hinton

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