The U.S. economy created 292,000 new jobs in the month of December, which coupled with a 50,000 upward revision to earlier months, closed 2015 with positive U.S. labor data. Employment growth was broad-based in December, with the construction, services and retail sectors all adding jobs. Most notably, the manufacturing sector, which has been hampered by a strong US dollar, added 8,000 jobs in December. The unemployment rate held steady at its seven-year low of 5%, likely due to the participation rate increase to 62.6%, as 500,000 people entered the workforce. While the surge in non-farm payrolls has put a meaningful number of people back to work, the pool of unemployed who are not in the labor force but would like a job still remains in the millions (13.8 million in December). This continued slack has caused wages to remain stagnant and the Fed to tread softly as they determine the pace of interest rate increases in the coming months. Average hourly earnings were unchanged in December, but thanks to favorable base effects, the annual growth rate increased from 2.3% to 2.5% (which remains below economist expectations for 2.7% growth). The Federal Reserve’s December meeting statement, released last week, stressed that developments in inflation will drive the pace of future rate hikes. While “nearly all participants were now reasonably confident that inflation would move back to 2 percent over the medium term,” impediments, namely low oil prices and sluggish wages, still stand in the way.
Sources: Capital Economics, Bloomberg, NY Times