U.S. companies’ hiring momentum slowed in December, ending an otherwise upbeat 2019 on a somewhat down note.
Nonfarm payrolls rose by 145,000 in December, below consensus estimates for a 160,000 gain. Manufacturing payrolls slid by 12,000, their biggest drop since August 2016, as the sector struggled with weakening global demand and lingering U.S.-China trade tensions. Calendar quirks related to the late Thanksgiving may have also played some role in the shortfall.
Even though December’s report was weaker than expected, we’ve been impressed with the job market’s durability in an aging economic expansion recently plagued by global uncertainty. Job creation moderated somewhat in 2019, but payrolls still grew at an above-average pace for the cycle. The labor force participation rate crept up during the year, hinting that working-age Americans feel confident in hiring conditions.
As shown in the LPL Chart of the Day, the job market has flourished in the past decade, a big reason in our opinion that the 10.5-year economic expansion is still chugging along.
The job market has been historically strong, but it hasn’t led to alarming excesses. Wage growth among non-supervisory workers has yet to creep above 4% this cycle, even though the unemployment rate has ground down to 50-year lows. To us, wage growth above 4% would be a sign of overheating, and would require the Federal Reserve (Fed) to tighten monetary policy.
In December, average hourly earnings for non-supervisory workers rose 3%, the slowest pace in 15 months. Even though slowing pay growth is worth watching, 3% wage growth is what we want to see—a healthy pace of income growth that likely won’t significantly crimp corporate profit margins while still supporting consumer spending.
“Strength in the job market has been the backbone of the U.S. economic recovery,” said LPL Financial Chief Investment Strategist John Lynch. “In 2020, we’d like to see jobless claims and unemployment remain low, with wage growth continuing near 3%. If those conditions continue, we’d expect to see the U.S. consumer contribute meaningfully to economic growth.”
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