Jobs Report: 2.2 million jobs gained in 2016; Unemployment ends year at a low 4.7%

January 6th, 2017 at 9:26 am

Payrolls rose 156,000 last month and the unemployment rate ticked up slightly to 4.7, as the US job market continues to post solid and steady gains. Over 2016, average hourly wage growth is up 2.9 percent, the fastest yearly gain thus far in the recovery that began in 2009. Coupled with low inflation, this means the job market is delivering real gains to paychecks.

JBs monthly smoother (average monthly gains over 3, 6, and 12-month periods) shows that the pace of job growth has slowed over the year, in part due to weaker GDP growth, but also as is characteristic of maturing recoveries. The Federal Reserve’s rate hikes, albeit small, may also be in the mix as they too are intended to tap the growth brakes.

The 2.9 percent increase in average hourly pay over 2016 is the fastest pace of wage growth since mid-2009, when the current expansion got underway. (Do not make a big deal out of the big monthly bump of 0.4 percent–that’s a bounce back from last month’s nominal wage decline.) While this number may spook some inflation hawks, it should not:

–nominal wage growth of 3-3.5 percent is considered non-inflationary by the Fed;
–after years of stagnation, wage earners have a lot to make up, and part of that should come from the non-inflationary source of shifting some national income from the profit to the wage side;
–there’s little evidence of wage growth bleeding into price growth in recent years; as wage growth has accelerated, prices have not;
–for 80 percent of the private workforce who are blue collar and non-managerial workers, pay is up 2.5 percent over the past year, so the gains may not fully be reaching all corners of the job market.

As noted, 2016 ended with the unemployment rate at a low 4.7 percent. While that measure is about what the Federal Reserve considers full employment (and thus a rationale for their December rate hike), other indicators, while also improved, are not there yet. For example, underemployment, a broader measure of labor market slack that includes 5.6 million part-timers who’d want but can’t find full-time work, remains somewhat elevated at 9.2 percent. Note that this is down from almost 10 percent over the year, and the lowest it’s been yet over the recovery.

The labor force participation rate ticked up slightly to 62.7 percent, the same level as a year ago and well below its pre-recession peak. Below, I discuss the recent history of this important benchmark. Also, the employment rate for prime-age workers (25-54) stayed constant at 78.2 percent last month. While this proxy for labor market demand for a core group of workers (who are generally non-retirees) is up almost 4 percentage points from its trough, it remains about 2 points below its pre-recession peak.

A final indicator that has significant room to improve is manufacturing employment. While factories added a welcome 17,000 jobs last month, jobs in the sector are down 45,000 in 2016 and were up a scant 26,000 last year, compared to being up over 200,000 in 2014. Part of that decline is due to a strengthening dollar making our manufactured exports less competitive, along with slower growth abroad. Given the salience of manufacturing in not just the political debate, but in the economic conditions and opportunities of many American communities, along with its important role in contributing to productivity growth, this is an area of weakness that demands serious policy focus.

With December’s data, we can make a preliminary comparison over full calendar years (forthcoming revisions will alter these results, though typically not by a great deal).  Over the course of 2016 (Dec 2015-last month), payrolls added 2.2 million jobs, an average of 180,000 jobs per month and a 1.5 percent growth rate.

Though still a robust pace of job growth, that’s a deceleration of job growth compared to the prior two years, when payrolls were up about 240,000 per month, on average. As noted, this slowdown is a function of slower real GDP growth in 2016 (and thus less pressing demand for labor) and a characteristic of job markets that are closing in on full employment.

As the figure below shows, tracking this Dec/Dec metric all the way back to 1940, the Great Recession (see circled part of figure) absolutely crushed the labor market, posting historic losses in both absolute (left axis) and percentage terms. As 2017 gets underway, annual payroll gains are back to their historical levels, with percentage gains of around 2 percent, a pace of job growth that is slightly higher than that of the 2000s expansion.

Source: BLS

The table below compares a few other labor market indicators over the last two cyclical peaks (2000, 2007), the bottom of the Great Recession (2009), and, using today’s data, 2016 (I use Q4 averages to smooth out some monthly noise). The unemployment rate is in the same range as in the prior peak years, and much improved, of course, from the depths of the recession. In 2009, the US job market shed a nightmarish 423,000 jobs per month, over 5 million for the year, sending the unemployment rate to almost 10 percent and the underemployment rate to about 17 percent.

Source: BLS, Author’s calculations

The very significant tightening up of the job market since then, in tandem with very low inflation (which has been, in fact, the major source of real wage growth in recent years), has recently led to faster nominal wage growth and higher real wages.

The labor force participation rate remains historically low, about three percentage points below its level at the end of 2007. But note that it fell in the 2000s cycle as well (though not as fast). Part of the decline over these years has been due to weaker job and wage growth failing to pull workers into the job market, while part—most, according to most analyses—relates to aging demographic trends.

If the partisan political dust ever clears, President Obama will be seen as having presided over one of the sharpest labor market recoveries in modern history, a dramatic reversal, as seen in the circled part of the figure above. The actions of his administration, along with the Federal Reserve, helped to hasten a recovery that, once it took hold in the job market, has delivered consistent employment growth since 2010. Wage growth, as noted, was a laggard, and the low LFPR and high underemployment rate suggests there’s still some room to run in the labor market before we’ve achieved full employment.

But the job market that president-elect Donald Trump is inheriting is strong—the “trend is his friend.” Wise application of fiscal policy—investment in infrastructure, for example (one that doesn’t rely on tax credits and projects with user fees)—could help pull more sidelined, prime-age workers into the job market, and could perhaps even help to boost productivity growth, by, for example, improving the quality of transportation infrastructure critical to supply chains.

But high tariffs, trade wars, wasteful tax cuts, deregulating financial markets (thus tempting future recession-inducing bubbles), whacking the safety net, and repealing the ACA will not support but will threaten the favorable jobs trend inherited by the president-elect.

In my experience, outside of recessions (when countercyclical policy is of great importance), presidents have a lot less to do with the good economic news for which they often take credit and the bad news for which they get blamed. That said, they can screw things up, especially when they’re guided by ideology, thin skin, and crony capitalism that pays back their funders. So stay tuned, as we’ll be tracking these developments as closely as ever.

Print Friendly, PDF & Email

13 comments in reply to "Jobs Report: 2.2 million jobs gained in 2016; Unemployment ends year at a low 4.7%"

  1. Gerald Scorse says:

    “If the partisan political dust ever clears, President Obama will be seen as having presided over one of the sharpest labor market recoveries in modern history, a dramatic reversal…” Tell that to Rep. Kevin Brady (R-TX), chairman of the Ways and Means Committee, who released his usual damning statement after the jobs report came out. It began with this: “While I welcome some of the bright spots in this report, it doesn’t change the fact that 2016’s job creation was the worst we’ve seen in years,” and it didn’t get much better. Just another day in D.C.

  2. Smith says:

    I don’t think you’re being fair to conditions, which are not great to say the least. The incomplete recovery is why Clinton lost, as she preached “four more years.” Here are my grievances, things left out, hidden, obfuscated, or down played.
    1) Working age population is 204 million (age 15 – 64) so 3% of prime age employment is a whopping 6 million. Even a more conservative estimate of 25 to 64 years old leaves you in the neighborhood of 4.5 million missing in action, or should I say inaction. With 180,000 jobs a month and 100,000 just to pick up natural growth in population we only get 1 million a year, so another 5 years to get back to 2009? We can stop calling it the lost decade because it’s apparently the lost score (as in 20 years). That’s even before we tackle the extra 2% (another 3 million) of underemployment.
    2) Next up, real wage growth of .9%? Come on, that’s supposed to be good? You’re leaving out the incredible historic low inflation rate that’s goosing the number at least 1/2 a percent. It’s part of the still lingering effect of a $50/barrel drop in oil two years ago, dampening real price increases. The other thing suppressing inflation is the weak global economy. How much of the .9% is the 1% getting more than their fair share? Obviously a lot since you show 80% of the workforce got a 2.5% nominal increase, vs nearly 3% average. So the top 20 got? 4.5% I’d guess that 4.5% is also skewed. Keep in mind also DNWR really works above 0, closer probably to 2%. Nobody said you get no raise because of low inflation. Likewise normal inflation does not necessarily lead to faster wage growth. Just look at wage growth during the 2000s (check State of Working America)
    3) I see hand wringing over loss of manufacturing jobs, but I don’t see the bold plan to protect workers. One can’t complain about Trump’s lack of specifics without offering and alternative. I understand there is a detailed “full employment” paper, but I don’t think “smarter trade agreements” falls within the realm of a message or a movement. Clinton failed because she was for the TPP before she was against it, but also because she couldn’t say no. No to more globalization, no to factories closing, no to increased outsourcing and insourcing and exploiting labor tied to employers. The BAT sounds good, but isn’t that a Republican plan? Instead of the one-offing Carrier and claims of “drop in the bucket” and “showmanship” and “fake news”, lets see the Democrats call Trump’s bluff. Propose a law that actually prevents moving factories that are profitable. Or something. Right now, I see nothing.

    Bottom line is the economy is not in great shape, both the official unemployment figure and wage increase are very misleading, and good for propaganda if you’re Obama. Bush set the bar so low, Trump could coast into 2020.

    Really, it doesn’t sound like you’re angry about the state of the economy.

    • Smith says:

      Another thing left out is inequality. Over the last 30 years, the top 1% share of income doubled to 20%. The top 10 to 2% also grew from 20% to 30%. That’s an extra 20%. That’s almost $4 trillion they didn’t used to have. They do not spend it, they do not need it, they invest it, occasionally in bubbles. The government should tax it away with 1963 tax rates of 90% on income above a million (which were on the books for 20 years, concomitant with the best economic period ever). Inequality grew tremendously during the Clinton boom years, proving prosperity does not solve the problem.
      In other words, not only should you be mad at the state of the economy, bad and statistical flukes hiding recession like conditions (high unemployment, weak wage growth, low productivity), but you should be additionally concerned about the inequity of the damage of a still unrecovered economy.

      At $3/hour in Mexico, according to the WSJ link below, there is no end to the migration of jobs south. Germany keeps it’s jobs home partly due to legal restrictions. Americans can either lose all auto manufacturing eventually or pass a law to stop it. Now is the time for Democrats to propose a law and call Trump’s bluff. Wage in Mexico will not approach US levels anytime soon. Even a 10% differential is enough to motivate selfish greedy stupid auto execs.

  3. urban legend says:

    The difference betwqeen 81.3% EPOP and 78.2% in the prime working age group (ages 25-54) has little if anything to do with aging demographic trends. Few people are retiring by choice at age 54. Extrapolated to the the entire workjing age workforce — as a rough proxy for the non-demographic-related shortfall — that’s equivalent to 7.5 million missing jobs.

    What those who want to say it’s mostly demographics conveniently ignore is that the rest of the advanced-economy world, with similar demographic terends, has moved in the opposite direction. How does that happen if that’s the main explanation?

    There is something fundamentally wrong with the American economy. We needed a stock bubble in the 90s and a gigantic real estate bubble in the aughts to approach full employment (in the late 90s-2000) or a semblance of full employment in the Bush years. As long as we pretend we are close to full employment, that fundamental flaw will never be diagnosed. It also means Democrats will never be able to offer a story about the economy and how they can fix it, and, accordingly, will continue Charlie Brown-like to lose elections over the phony character issues Republicans have been successfully manufacturing for two generations.

  4. JF says:

    JB, the CEA paper shows that the largest wage gains, by far, came in the segment referred to as “financial activities.”

    My suggestion is that you rerun the tables and reports means and averages and other analyses simply dropping this financial activities segment out altogether.

    Another suggestion is to take the top 1 percent income statum out too, as by their nature they are outliers. We would get a better look at the US income flows and its workforce by doing that (few are medical doctors and few work in the funancial sector at the upper income levels, these are hardly the places most residents see in their future once they are already in the workforce, but not in these small population groups).

  5. JF says:

    I didn’t want to detract from the earlier comment about how we should look at the US workforce using the data in a way that actually reflects it.

    But I have to also make note about the increasing wage gains in the financial activities segment. In essence, the financial system has the privilege to create credit on its own, and it uses this to fuel activities in its own system. No surprise that a sector that creates its own money can pay itself well. But thus is also a fundamental reason why its data need to be excised from many studies in labir economics and economics in general. Most of the rest of the economy simply can not create its own money, it must work and produce to earn its income. Drop this sector out of many studies and programs of statistics so you are looking at apples to apples (sure continue some stat programs with them in, then look at the differences in views of the world).

  6. Gerald Scorse says:

    Following up on my earlier comment, here’s a fact that Ways & Means Chairman Brady completely ignored: Since job growth turned positive in October 2010, the U.S. economy has added jobs for 75 straight months—the longest streak of job growth on record and more than two years longer than the next-longest streak. (Of course that happened under President Obama, and we all know what a lousy job he’s done.)

    • Smith says:

      Obama failed to ensure an adequate recovery and he himself subscribed to the idea of deficits as a priority. He pursued a grand bargain. He failed to rally the country to reject austerity and instead accepted sequestration, rhymes with you know what. He put his faith in the Democratic establishment, Clinton advisors, Clinton policies, Clinton herself. He let the NLRB nominations be blocked, and provided the blueprint to the Supreme fiasco. Trump and Scalia were gifts which he took for granted, along with 50,000 voters in the Rust Belt. None of his friends from Chicago knew what anyone with common sense would know. The tell tale sign were the foreclosures he could have prevented, no congressional approval required. Don’t blame conservatives for being conservative. Blame liberals for being weak, blind, and losing a winnable battle.

      The 50,009 is number of Tromp voters needing to switch to Clinton out of 125 million votes. Obama outspent Clinton by $200 million 2012 vs 2016 in general.

      Be upset about all this.

      • John Densmore says:

        Sorry, but Obama only had 2 years to push policy and indeed, the private sector still grew enough to offset the slight contraction in the public sector. Get out of here.

        Wage growth wouldn’t be moving upwards without hitting full employment. It is what it is.

        • Smith says:

          No, Obama had numerous bargaining chips and residual power but failed to use them, misplayed his hand. The expiration of the Bush tax cuts, sequestration, and debt ceiling fiascos are just some examples. He was president for eight years and could command public debate like no other government official. His great oratorical gifts were unrivaled, but he failed to use them effectively. Besides, he got the stimulus he wanted, that he mistakenly thought was adequate to ensure recovery, guided by Larry Confidence Fairy Summers. He is the one who prematurely pivoted to austerity. He even froze Federal wages. He was the one who went looking for a grand bargain on Social Security and Medicare.

          Wage growth moves upwards without hitting full employment all the time. It’s called downward nominal wage rigidity, you continue to get some increase no matter the state of the economy. There is momentum of wage increases set in motion by normal inflation expectations. The 3% and 2.5% are nominal increases. That actual real wage increase is 1% over the last quarter and probably the same for the year. You subtract the 2% inflation to see your real increase in purchasing power. Energy prices are keeping inflation low, as core inflation is actually running slightly above 2%. Sure these wage gains, largely skewed towards higher incomes, are great when you compare them to the period since 2009, the era of the Great Recession. Enough of the country felt the slack in the economy and that’s why you have Trump.

        • Smith says:

          More evidence in my favor, both the actual number comparisons, and the graph that reaches back beyond 2009.

      • Gerald Scorse says:

        “The 50,009 is number of Tromp voters needing to switch to Clinton out of 125 million votes.” True, and it says to me that what happened wasn’t the result of Obama failing to “ensure an adequate recovery,” or “failing to rally the country to reject austerity,” or anything else above; it was, plain and simple, an accident. It was a terrible accident, totally awful, and you’d better I’m “upset about all this”. But I don’t blame Obama, and I don’t blame Clinton, and I don’t blame liberals; neither, to my mind, should anybody.

        • Smith says:

          It should not have been close. Seriously. Trump was a gift. Trump’s win was no accident. Clinton made the exact same mistake she made in 2008. She ran as the continuity candidate in a change election.
          She also spent less money than Obama, an incumbent president did. in 2012 in the general election. She favored globalization. She brought Miss Universe into the debate. That got more publicity than her program for jobs, which was an insufficient $100 billion a year and a public private development bank. She told America that it was great already. I’m not a Trump voter, but the economy is not great. The numbers say it will take another 5 to 6 years of 180,000/month new jobs just to reach 2008 levels of employment.

          It’s Obama’s fault. It’s Clinton’s fault. It’s the liberal’s fault. They got outplayed, outsmarted, and outvoted by the conservatives. They also favor globalization, Obama pushed the TPP, pursued a grand bargain, passed Romneycare, kept 80% of the Bush tax cuts, agreed to sequestration, allowed the NLRB appointees to be blocked for years, and then chose not to fight for the Supreme Court nominee because he figured Clinton would win.

          But really, the worst part of Obama’s failures is that allowed Trump to be elected.