Our friends at E21 have a new article breaking down the exceptional (and surprising) US job growth in December:
The US December jobs report was exceptional with employment gains of 312,000, rising labor force participation and hours worked, and average hourly earnings growth of over 3 percent for the third consecutive month.
The average monthly jobs growth in 2018 was 220,000 compared to 182,000 in 2017 and 195,000 in 2016. We expect average monthly employment growth to slow in 2019, but rising labor force participation for prime working-age persons will support further healthy job gains. Monthly job growth around 120,000 is sufficient to keep the unemployment rate under 4 percent.
The 312,000 projected jobs figure was nearly 50 percent higher than analysts projected. E21 explained the gains:
The strong job growth was broad-based with the goods sector adding 74,000 jobs, bringing its 2018 total to 624,000 up from 509,000 in 2017 and 82,000 in 2016. Construction employment rose by a strong 38,000 in December despite consistent complaints of labor shortages in the sector, and manufacturing payrolls increased by a robust 32,000. Mining employment rose by 4,000 despite the sharp drop in oil prices. If oil prices remain low, we expect hiring and investment in mining to stall.
Service sector employment rose by 227,000 in December. Service sectors showing above-trend gains included retail (24,000, reflective of the strong holiday shopping season), education and health services (82,000), and leisure and hospitality (55,000). Temporary help services, usually one of the earliest to shed jobs when there is a crisis, continued to add jobs (10,000).
BLS data show that the 312,00 jobs created in December are the most since 1998, a month that saw 367,000 jobs created.
Though these are preliminary figures, they would cap off a year that defied the expectations of many economic prognosticators. To what do we owe the stronger than expected performance? Here is economist Mickey Levy’s take:
Overall, labor market performance surpassed expectations in 2018, boosted by the Tax Cuts and Jobs Act and stronger-than-expected labor force growth reflecting the elevated optimism of households about job-finding prospects. Businesses appear to be looking through the financial market volatility, global growth concerns and uncertainties, and remain confident in the US economic outlook.
We’ll see if the economy can continue to defy expectations despite the structural obstacles it faces (not to mention some of the protectionist instincts of the White House).
My hunch is that (an economic) winter is coming, considering Washington’s addiction to spending, deficits, and easy money. But I’ve been wrong before.