Jobs day–first impressions: 2014 was a solid year for job growth and less fiscal drag was a big factor.

January 9th, 2015 at 9:15 am

US payrolls grew by 252,000 last month and by 2.95 million over 2014, making last year the strongest year for job since 1999 (that’s comparing Dec-over-Dec). Below, I offer some thoughts as to one reason why the 2014 job market outperformed earlier years in the recovery.

Payroll growth was notably strong in this report. November’s big gain was revised up to 353,000, and as my monthly smoother shows, job gains have accelerated over the course of the year, up 289,000 on average over the past three months compared to 246,000 over the full year.


Source: BLS, my analysis

However, there were two clouds in the December report. The labor force participation rate fell two-tenths of a point, fully explaining the decline in unemployment from 5.8% in November to 5.6% last month. Also, after an upside surprise in last month’s report, hourly wages disappointed on the downside in December, down five cents. Moreover, November’s 0.4% wage bump was revised down by half. Thus, in 2014, hourly wages were up 1.7%, a touch below 2013’s 1.9% gain.

In other words, wage growth unquestionably remains a key missing piece from a job market recovery which on most other measures has finally taken hold. Take note, Federal Reserve: this economy clearly has no wage or price pressures that would point towards an early liftoff on interest rates.

Two other relevant observations on the wage side are:

–because of the sharp decline in oil prices, inflation is growing slowly enough to turn even these tepid nominal gains into real gains. Most recently, prices were 1.3%, year-over-year, so even 2014’s 1.7% yields a slight real growth rate.

–the increase in jobs and hours means working households’ incomes can rise even with relatively flat real hourly wages. Weekly earnings, for example, were up 2.5% in 2014, around 1% ahead of inflation. To be clear, this implies that to the extent families are getting ahead, it’s through more work at stagnant real hourly wages.

Even with these caveats, 2014 was the most solid year for the labor market since the Great Recession hit in late 2007.

–As noted, payrolls were up almost 3 million; in 2009, they fell by more than 5 million.

–Unemployment fell 1.1 percentage points, while the labor force rate essentially stabilized, down only 0.1 percentage points.

–In 2013, the labor force rate fell almost a point (0.9 ppts), so even with the wiggle down last month, this key variable has at least stabilized in 2014.

–The number of both long-term unemployed and involuntary part-timers fell significantly over the year.

All of which raises the question: why was 2014 the year the labor market finally gained some velocity? In no small part, it was the move from fiscal drag to fiscal neutrality. That is, spending cuts and tax increases—aka austerity measures—shaved about 1.6 percentage points off of GDP growth in 2013 (see figure below, courtesy of Goldman Sachs Research). But last year, fiscal impulse was neutral.


Source: GS Research

The policy punchline is this: Congress, do no harm! There are numerous fiscal cliffs and similar opportunities for DC drama, including the Highway Trust Fund (goes dry in May), the debt ceiling (we bump up against it around late summer), a new budget needed at the end of September, and sequestration waiting to pounce back in 2016.

We’ve finally got some mo going here—I won’t ask the new Congress to help push things along, though some attention the wage issue is surely warranted (or should I say Warren-ted…?). But I absolutely will go up to Capitol Hill and beg them on bended knee not to throw any fiscal wrenches into the mix.

Jobs day tomorrow!

January 8th, 2015 at 5:29 pm

Seems like it’s been a while, as jobs day comes a bit late this month. With December’s data we get the first look at 2014 full-year, and almost any way you cut it, 2014 will be a relatively strong year for job growth. EG, if we hit the consensus for December payrolls of around 240,000, growth for the year will be 2.9 million, making 2014 the strongest year since 1999. In fact, that result holds if we find we added zero jobs in December, which we won’t. Or, more precisely, if we do, I won’t believe it.

Here’s the Bloomberg consensus:


Source: Bloomberg.

I’m north of the consensus on payrolls: 260K, so tune in tomorrow. First impressions shortly after the 8:30 release.