Economy Adds 2.64 million Jobs in 2018

Over the year, the U.S. economy added 2.64 million jobs, making it the third best year for job growth since the recession a decade ago and the third best year since 2000.

The Labor Department also reported that there were 312,000 jobs created in the U.S. economy in December, well above the consensus expectation of 176,000. This was the 99th consecutive month of job growth. November was revised up from 237,000 to 274,000 and October was revised up from 237,000 from 274,000. With these revisions, employment gains in October and November combined were 58,000 more than previously reported.

In December, employment in health care rose by 50,000. In the past year, health care has added 346,000 jobs, more than the gain of 284,000 in 2017.

The unemployment rate increased 0.2 percentage points from a near-50 year low of 3.7% in November to 3.9% in December. Nevertheless, the jobless rate remains well below the rate of what is generally believed to be the “natural rate of unemployment” of 4.5%, which suggests that upward pressure on wage rates will continue. Further indications that this is in fact starting to occur were released in the report. Average hourly earnings for all employees on private nonfarm payrolls rose in December by eleven cents to $27.48. Over the past 12 months, average hourly earnings have increased by 84 cents, or 3.2%. This was the strongest pace since 2008. Last year, they rose by 2.6%.

A broader measure of unemployment, which includes those who are working part time but would prefer full-time jobs and those that they have given up searching—the U-6 unemployment rate—was unchanged at 7.6% in December.

It is important to note that the jobless rate is calculated from a different survey than the survey used to calculate the number of new jobs (the household versus the establishment survey, respectively).

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work rose to 63.1% in December from 62.9% in November, still very low but up from its cyclical low of 62.3% in 2015. The low rate at least partially reflecting the effects of an aging population.

As widely anticipated, the Federal Reserve hiked the fed funds rate by 25 basis points at its December 18th and 19th FOMC meeting to a range of 2.25% to 2.50%. This marked the fourth increase in 2018. The Fed has now raised rates by a quarter percentage point nine times since late 2015, after keeping them near zero for seven years. However, the Fed did shift its tone a bit and lowered its official projection for additional rate increases in 2019 from three to two increases.

Its notable that most economic data releases, including all of those published by the BEA, Commerce and Census Bureau, will be suspended while the Federal shutdown continues. However, media reports suggest that data releases from the BLS, including the Employment Report and CPI, will continue as scheduled.