U.S. MarketFlash | Economic Watch: Employment Growth Cools as Wages Rise Modestly
January 5, 2018
Headline: U.S. employment rose by 148,000 jobs in December, which was below the consensus expectation of 190,000. October’s jobs gain was revised down and November’s upward for a net gain of 9,000 jobs. The latest number brought the monthly average jobs gain to 204,000 over the past three months. The unemployment rate was unchanged at 4.1% and the labor force participation rate remained at 62.7%. The economy added 2.1 million jobs in 2017, compared with 2.2 million in 2016.
Executive Summary: Slower jobs gains in December confirm that the post-hurricane recovery in jobs from reconstruction efforts has faded. Wages grew modestly in December. Hiring was broad-based, with strong gains in health care, manufacturing and food services. Construction also had a solid increase of 30,000 jobs in December, the most since February 2017, reflecting recent strong increases in homebuilding activity. Meanwhile, retail jobs decreased by 20,300—the largest drop since March 2017, despite reports of a strong holiday shopping season.
Wage Inflation: Wages grew slightly in December, with average hourly earnings rising 9 cents or 0.3% to $26.63 per hour. As a result, annual growth in wages for December stood at 2.5%, up from the 2.4% recorded in November. The pickup in monthly wage gains, despite cooling employment gains—likely due to the labor market nearing full employment—could be another reason for the Fed to increase interest rates in March.
Labor Force Participation: The labor force participation rate stayed at 62.7% in December. Without an improvement in the participation rate, it will be difficult to increase the pace of hiring. The rate has remained between 62.4% and 63.1% since August 2013.
Job Growth Outlook: We expect the rate of gains to moderate in coming months, as employers find it difficult to fill skilled positions from the current workforce. A rise in participation would help, but growth of the labor force will be limited due to the aging population. The $1.5 trillion package of tax cuts signed into law before Christmas, which includes a sharp reduction in the corporate income tax rate to 21% from 35%, is expected to provide a boost to the job market. However, gains will likely be modest, given that the timing of the stimulus coincides with the economy operating almost at full capacity.
CRE Sector Employment:
Retail: Retail employment decreased by 20,300 in December, despite reports of a strong holiday shopping season. General merchandise stores payrolls, which include department stores, declined by 27,300, with employment at clothing stores dropping by 3,800. Food & beverage stores added 25,000 jobs. Overall, retail trade employment was down by 67,000 in 2017, compared with 203,000 jobs added in 2016.
Industrial: Manufacturing payrolls rose by 25,000, which was largely due to strong hiring activity in the durable goods industries (+21,000). After a lackluster 2016, when manufacturing jobs were down by 16,000, payrolls rose by 196,000 in 2017.
Office: Professional & business services added 19,000 jobs in December. The industry added 44,000 jobs per month in 2017, on par with the average monthly gain in 2016.
Construction: Construction added a solid 30,000 jobs in December, with much of the increase among specialty trade contractors (+24,000). The rebuilding effort from the hurricanes will keep this sector moving for at least another year. The sector added 210,000 jobs in 2017, stronger than the 155,000 gain in 2016.