Hiring Surge Trims U.S. Job-Market Slack Holding Back Wages

Three Things You Might've Missed About the Labor Market
  • Employment gains revised higher for October and November
  • Advance in yearly average hourly wages smaller than forecast

The American labor-market juggernaut rolled unabated at the end of 2015, cushioning the U.S. economy from weakness abroad, but failing to ignite the wage growth sought by Federal Reserve policy makers.

Employers added 292,000 workers to payrolls in December, exceeding the highest estimate in a Bloomberg survey and putting the gain for all of 2015 at 2.65 million, a Labor Department report showed on Friday. The unemployment rate held at a seven-year low of 5 percent as almost a half million people entered the workforce, a separate survey of households showed.

While the surge in hiring is putting a dent in the pool of jobless workers, they still number in the millions, meaning companies don’t have to bid up pay to attract staff. The lack of more substantial wage growth helps explain why Fed officials have said they will nurture sustained gains in employment by raising interest rates only slowly.

“One reason we’re not seeing a lot of wage pressures is that there’s still a fair amount of slack,” said Nariman Behravesh, chief economist in Lexington, Massachusetts, for IHS Inc. “Wages over the course of the year will begin to accelerate, but very gradually.”

Stocks tumbled in a late-afternoon selloff that sent major equity indexes to their worst weekly declines in more than four years, as investors found little relief in the job market’s resilience amid unease over China’s efforts to restore calm to its sinking markets. The Standard & Poor’s 500 Index dropped 1.1 percent to 1,922.03 at 4 p.m. in New York.

The 2015 increase in hiring followed a 3.1 million gain in 2014, for the best back-to-back years since 1998-99.

The December advance in payrolls followed a 252,000 increase in November that was stronger than the previously estimated 211,000. Labor Department revisions added 50,000 jobs in November and October.

The median forecast in a Bloomberg survey of 92 economists called for a 200,000 gain in employment. Estimates of economists polled ranged from increases of 135,000 to 250,000.

The unemployment rate for all of 2015 averaged 5.3 percent, the lowest since 2007, when it was 4.6 percent.

While employers continue to aggressively add to headcounts, worker pay has yet to show a sustainable pickup. Hourly earnings in December were $25.24 on average, down one cent from the prior month. They increased 2.5 percent from a year earlier, less than the 2.7 percent gain projected in the Bloomberg survey of economists.

One reason for stubbornly small increases is that there are still plenty of people willing to work. The pool of available workers, those who are unemployed and those not in the labor force but want a job, totaled 13.8 million in December, according to Labor Department figures.

While that’s down from the record 21.4 million in October 2009, it was little changed from the highest level seen during the 2001-2007 economic expansion.

"Slack is diminishing but we’re not at full employment yet,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “Once we blow through full employment, that’s when we’re going to see a real turn in wages."

The U.S. isn’t alone in it’s inability to stoke bigger increases in worker pay even as joblessness declines. Economies across the developed world, including the U.K., Japan and Germany, are at or approaching full employment without much impact on wages.

The increase in hiring is giving Americans the confidence to join the job hunt. The workforce grew by 466,000 last month and employment climbed by 485,000, the biggest gain in almost a year, according to the separate survey of households used to calculate the jobless rate.

The share of the population working climbed to a more than six-year high of 59.5 percent.

Broad-Based Gains

Hiring gains last month were broad-based, with construction adding 45,000 jobs, health-care providers taking on 52,600 and temporary help services boosting headcounts by 34,400. Factories even added the most jobs -- 8,000 -- in five months.

“We’re seeing an economy that’s not only creating impressive numbers of jobs, but we’re also creating impressive numbers of good jobs,” Labor Secretary Tom Perez said in a phone interview. “We’re making progress. We’ve obviously got more work to do.”

Minutes of the Fed’s December meeting, when policy makers boosted their target rate for federal funds for the first time since 2006, showed participants acknowledged the improvement in labor market conditions. Many judged it as “substantial.”

“Members agreed that a range of recent labor market indicators, including ongoing job gains and declining unemployment, showed further improvement and confirmed that underutilization of labor resources had diminished appreciably since early this year,” according to the minutes, released on Wednesday. At the same time, Fed officials said there was room for slack to be absorbed and signaled further hikes in interest rates would occur gradually.

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