Super-Low Unemployment Comes With Some Unintended Consequences

There is one serious feat, considering that the recession is now a decade in the past. According to the U.S. Department of Labor, the United States has now gone 10 straight years with consistent and consecutive jobs growth, after an in-line jobs report on Friday. Nonfarm payrolls rose by 145,000 and the unemployment rate was flat at an ultra-low 3.5% in December. Econoday had called for 158,000 in nonfarm payroll gains, and that unemployment rate matched the consensus estimates.

The total number of unemployed was 5.8 million, down from 6.3 million a year earlier, and the unemployment rate a year ago was 3.9%. The number of long-term unemployed stood unchanged at roughly 1.2 million in December and accounted for 20.5% of all unemployed people.

Private sector payrolls rose by 139,000 in December. That was a tad shy of the 150,000 consensus from Econoday. The nonfarm payrolls report was revised by 10,000 fewer payrolls added (to 256,000) and private sector payrolls were revised down by 11,000 (to 243,000) in November.

These jobs numbers sound stellar in a continuation of a decade-long economic expansion. Yet, some serious unintended consequences (or coincidences) are coming with a super-tight labor market. The key issues are around pay and actually finding someone to fill a job opening. As for the annual job market changes for all of 2019, the total increase in payrolls was 2.1 million, versus a total gain of 2.7 million payrolls in 2018.

The labor force participation rate came in flat at 63.2%, but average hourly earnings rose only 0.1% (or $0.03 per hour) from November, versus an expected 0.3% gain. Those hourly earnings were up 2.9% to $28.32 from a year earlier.

Employment in health care increased by 28,000 in December, and construction employment rose by 20,000. Employment in leisure and hospitality rose by 40,000 payrolls and retail trade added 41,000 payrolls. Employment rose in professional and business services, with 10,000 added payrolls. Contraction was seen in transportation and warehousing (−10,000) and manufacturing (−12,000) in December.

The number of people employed part-time for economic reasons was 4.1 million, down by 507,000 from December of 2018. These are individuals who would have preferred full-time employment but worked part-time because their hours had been reduced or they were unable to find full-time jobs. There were also 1.2 million people who were considered to be marginally attached to the labor force in December, down by 310,000 from a year earlier. Those are the people who are not in the labor force but wanted a job and were available for work, and they had looked for a job sometime in the prior 12 months.

As was cited by a separate report a day earlier, the unemployment rate is now so low that the jobs report may not matter for a while, until there is a major surprise that spooks the jobs market that the best is over or that a new wave of potential job entrants are suddenly filling the rest of the vacant positions. The biggest complaint now that will make filling vacancies difficult is that employer after employer keeps saying that they cannot find qualified job candidates to fill open positions.
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