December’s employment numbers from the Bureau of Labor Statistics (BLS) kept positive economic momentum rolling into the New Year. Not only were 252,000 non-farm jobs added in December, but the October and November numbers were also revised upward by another 50,000 jobs. Almost 3 million jobs were created in 2014, making it the best year for hiring in 15 years.
The unemployment rate fell by 0.2% to 5.6%, the lowest number since June of 2008. The more comprehensive U-6 unemployment numbers that include involuntarily part-time-employed and marginally attached workers fell to 11.2%, the best result since September of 2008.
The BLS report also provided a sunny picture in terms of the breadth of job growth and the types of jobs that are being created. New jobs in professional and business services averaged 61,000 per month, healthcare added 26,000 new jobs per month on average, and wholesale trade and financial activities continue to trend upward.
What’s not to like? In general, things point toward continued economic growth, which is remarkable given the level of worldwide economic uncertainty. The one remaining fly in the ointment is wage growth – or more correctly, the lack of it.
Low Skills, Low Wages?
Average hourly earnings declined by five cents to $24.57, although this could be skewed by seasonal factors. Overall improvement in wages lags considerably behind job growth. Normally, a 5.6% unemployment rate and economic growth should raise the specter of inflation, but wage growth is simply inadequate to kick off traditional inflationary wage-price spirals.
Part of the issue may be the remaining pool of unemployed and underemployed reflected in the U-6 numbers. While 11.2% is a good number for recent times, compare it to the last hiring binge in 1999, when the U-6 rate averaged around 7.5% and stayed there until mid-2001. There is still a large pool of potential workers to absorb.
However, how many of those workers have the correct training to match the skills for the new jobs being created, and are programs in place to help them achieve these skills? It may be that the “new normal” is a U-6 number closer to 10-11% than to 8-9%, just from the standpoint of a skills mismatch.
That presents a different set of problems, but in terms of wage pressures, it should finally force wages up, as competition for qualified workers kicks in for more than just the highest-skilled positions.
Domestic and Global Economies
Meanwhile, with respect to the global economy we are in pretty good shape. Consider Europe and Japan – both are teetering on recession and deflation. Josh Feinman with Deutsche Asset & Wealth Management asserts that “our domestic fundamentals are sound” and thus our economy can overcome global problems. Meanwhile, the Fed seems to be in no hurry to apply the brakes of higher interest rates.
Most factors point toward continuing steady job creation and the beginning of upward wage pressures, which should spur consumer spending and keep the economy moving forward even in the face of lowering demand overseas. The Fed still sees a 5.4-5.6% unemployment rate through 2015, but Gus Faucher, a PNC Financial Services Senior Economist, suggests that unemployment may drop as low as 5% by the end of 2015.
The Fed stands ready to tackle any inflationary pressures, oil prices are not likely to rise anytime soon, and stocks appear to be poised for continued steady growth. All that is left is for the job growth to continue as expected and wages to finally rise. Many analysts believe that will be the case in 2015.