U.S. economy created 148,000 jobs in December 2017

The Labor Department reported that there were 148,000 jobs created in the U.S. economy in December.   This was below the consensus expectation of 190,000 jobs.  This marked the 87^th consecutive month of positive job gains for the U.S. economy.  Revisions subtracted 9,000 jobs to the prior two months.  For all of 2017, the economy generated 2.1 million jobs and averaged 171,000 per month.  This marks the second time on record that the economy has created at least 2 million jobs a year for seven consecutive years (the first time was in the 1990s). The 2.1 million increase was the smallest since 2010, however.

Health care added 31,000 jobs in December. Health care added an average of 300,000 jobs in 2017, down from 379,000 in 2016.

The unemployment rate remained unchanged for the third consecutive month at a 17-year low of 4.1% in December. This is below the rate of what the Federal Reserve believes is the “natural rate of unemployment” and suggests that there should be upward pressure on wage rates.

Average hourly earnings for all employees on private nonfarm payrolls rose in November by nine cents to $26.63. Over the past 12 months, average hourly earnings have increased by 65 cents, or 2.5%. This is down from the 2.6% average in 2016.  In 2015 this figure was 2.3% and in 2014, it was 2.1%.

Over the course of the year, the jobless rate fell 0.6 percentage points.  The trend in monthly payroll employment gains would have to drop to less than 100,000 per month to stop the ongoing downward trend in the unemployment rate from continuing.  In annual revisions to data based on the household survey, the unemployment rate for June 2017 was lowered to 4.3% from 4.4%; rates for other months during the year were unrevised.

The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.5 million and accounted for 22.9% of the unemployed. Over the year, the number of long-term unemployed was down by 354,000.  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—increased to 8.1% in December from 8.0% in November, but was down from 9.2% as recently as last December.

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work remained at 62.7%.  This measure has generally been very low by historic standards, at least partially reflecting the effects of retiring baby boomers.

Today’s report will support expected increases in interest rates through 2018 by the Federal Reserve, with the first 25 basis point increase likely happening in March 2018.  The Fed has raised rates by a quarter percentage point five times since late 2015, and most recently to a range between 1.25% and 1.50% in December 2017, after keeping them near zero for seven years.