U.S. payrolls surge in December in boost to economic outlook
U.S. job growth surged in December and employment for the prior two months was revised sharply higher, suggesting that a recent manufacturing-led slowdown in economic growth would be temporary.
Nonfarm payrolls increased by 292,000 last month, the Labor Department said on Friday. The unemployment rate held steady at a 7-1/2-year low of 5 percent even as more people entered the labor force, a sign of confidence in the labor market.
October and November payrolls were revised to show 50,000 more jobs created than previously reported, adding to the report’s upbeat tone. The only wrinkle was a one cent drop in average hourly earnings, but that was most likely because of calendar effects which should reverse in the January report.
The solid employment data should soothe fears over the economy’s health and suggests the recent weakness in activity is mostly limited to the manufacturing and export-oriented sectors, which have been hit by a strong dollar and anemic global demand. Efforts by businesses to whittle down an inventory glut and spending cuts by energy companies have also inflicted pain.
In the wake of soft reports on manufacturing, construction spending and export growth, economists this week slashed their fourth-quarter growth estimates by as much a full percentage point to as low as a 0.4 percent annual rate. The economy grew at a 2 percent rate in the third quarter of last year.
The closely monitored jobs report could offer a brief respite to global stock markets after heavy selling this week sparked by signs of slowing growth in China.
While labor market resilience would favor another interest rate hike from the Federal Reserve in March, economists say financial market turmoil and concerns among policymakers over low inflation suggest the U.S. central bank may stay on the sidelines a bit longer.
The Fed last month raised overnight interest rates by a quarter percentage point to between 0.25 and 0.50 percent, the first increase in nearly a decade, and a subsequent move at its next meeting this month was already seen as off the table.
Wage growth will come under scrutiny this year. Despite the drop in average hourly earnings in December, the year-on-year gain in earnings was 2.5 percent in December compared to 2.3 percent in November. That was mostly because wages were unusually weak in December 2014.
Wage growth is expected to accelerate by the middle of the year as the labor market settles into full employment.
Also being watched closely this year is the labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job. While the rate increased one-tenth of a percentage point to 62.6 percent in December, it remains near four-decade lows.
There are concerns that persistently low participation could hamper job growth as the supply pool shrinks, unless a pick-up in earnings entices more Americans to return to the labor force.
Employment gains in December were concentrated in the services sector, with mining shedding 8,000 jobs last month. Employment in the sector declined by 129,000 in 2015. More losses are likely after the price of oil this week tumbled to an 11-year low.
Oilfield services provider Schlumberger last month announced another round of job cuts in addition to 20,000 layoffs already reported in 2015. The company said it expected the slowdown in drilling activity to continue this year.
Manufacturing added 8,000 jobs last month. Unusually warm weather boosted construction payrolls, which increased 45,000. There were also gains in the leisure and hospitality sector.
Retail payrolls rose only 4,300 as mild temperatures hurt sales of winter apparel.