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Econometric Advisors' blog

Employment Situation, December 2016

Jan 6, 2017, 13:54 PM by Jeff Havsy

The economy added 156,000 jobs in December and the unemployment rate rose 0.1% to 4.7%. Despite the relatively low headline number, December’s report had a lot of positive data behind it. Revisions to October and November jobs numbers showed a net gain of 19,000 jobs, with a slight decrease in October and an increase of 26,000 jobs in November. The three-month rolling average fell to 165,000, a drop of 11,000 from last month. The economy added 2.2 million jobs (roughly 180,000 per month) in 2016, compared with 2.7 million in 2015 (roughly 225,000 per month).

Hourly wage growth jumped significantly in December, by 10 cents to $26.00. The year-over-year gain rose to 2.9%, a seven-year high. Wage growth has increased for the past two years and has averaged between 2.5% and 2.7% for the past six months. We may see additional increases in the January report since a number of states have increased their minimum wage.

Given the tight labor market and the skill mismatch that exists between employers and the unemployed and under-employed, we expect that the pace of hiring will slow.

The labor force participation rate remained at 62.7% in December, unchanged from the start of 2016. The monthly number is volatile, but the series has remained between 62.4% and 63.0% since August 2013. The employment-to-population ratio remained unchanged at 59.7% for the third consecutive month.

Health care added 43,000 jobs in December and averaged 35,000 per month for the year. This was down slightly from 2015’s 39,000 monthly pace. Manufacturing added 17,000 jobs in December, but lost 63,000 jobs over the course of the year. Professional business services changed little, adding 15,000 jobs in December and 522,000 over the course of the year.

We expect that the Fed will raise interest rates at least three times in 2017, as wage growth and inflationary pressures increase. Other forecasters predict at least four increases, with the assumption of a big fiscal stimulus in Q2 2017. We remain more cautious, but are watching inflation closely to see if the Fed is forced to move more frequently.

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