The US job market created 292,000 jobs in the month of December, and with upward revisions to the two preceding months, the nation appears to have created 2.6 million in calendar 2015. Unemployment stayed at 5% as more workers returned to the job market. This final employment figure may be tweaked in a month or two when December’s revisions are announced. Still, the US is averaging more than 200,000 new jobs a month, and 2014-15 marks the best two-year job creation period since the late 1990s. Does this mean the economy is booming?
Unfortunately, it is hard to answer that question. Despite rising employment, wages remain sluggish, to the point that financial journalists are wearing the word out. Moreover, the market chaos in China and Europe’s economic weakness may have spillover effects that can do severe damage to job-seekers’ prospects.
Nevertheless, gaining 2.6 million jobs is better than losing jobs to be sure. “It is one more sign the domestic economy continues to chug along,” said Kate Warne, investment strategist at Edward Jones in St. Louis. “It is not a game changer in terms of faster economic growth, but it offsets some of the other indicators that recently have suggested the economy might be slowing down.”
Those who believe inflation is a worry (this journal is not among them) will use the job figures to argue for another interest rate increase at the March FOMC meeting at the Federal Reserve. The New York Times stated, “Economists said December’s decline in earnings could simply be due to a quirk of the calendar. Despite the drop, the year-on-year gain moved up to 2.5 percent from 2.3 percent in November, although that reflected an unusually weak December 2014.
“Also being watched closely 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 persistently low participation could hamper job growth as the supply pool of workers shrinks, unless a pick-up in earnings entices more Americans to return to the labor force.”
That, of course, is the real issue. Unless and until wages start to rise, there is no point in worrying about inflation. Moreover, unless and until people have more in their paychecks, they are not going to commit to the kind of consumption that truly moves the economy. The Fed still faces a fight with deflation, and its anti-inflation maneuvers are inappropriate until the participation and unemployment rates move significantly more.
For the next several months, the jobs figure will be much more important politically than it is economically. The GOP will contend that the figures are meaningless because the participation rate is so low or because wages aren’t moving. Meanwhile, the Democrats will point out that jobs are back, and the return of those jobs is in spite of, rather than thanks to, the Republican-controlled Congress.
In the end, the Democrats are in the pole position so long as the wheels don’t come off the economy as spectacularly as they did in 2007-08 when George W. Bush was on his way out. That said, there are enough concerns in the global economy to make one cautious in declaring a winner of the general election.