The Opportunity in the Jobs Report
The U.S. job market’s impressive showing in December should give the Federal Reserve confidence that it was right to start raising interest rates last year. That said, there may be more the central bank can do to get millions of Americans back to work.
Nonfarm employers added an estimated 292,000 jobs last month, bringing the three-month average to 284,000 -- more than enough to compensate for natural growth in the labor force. The unemployment rate didn’t fall from its previous level of 5 percent, but for a good reason: All the hiring appears to be encouraging more people to actively seek work, a requirement to be counted as unemployed.
Typically, the strong demand for workers would start to push up wages, requiring the Fed to head off inflation by raising interest rates. Despite a bout of raises late last year, though, that doesn’t appear to be happening. The average hourly wage actually declined by a penny in December, to $25.24, bringing the three-month annualized rate of growth to 1.9 percent, far short of what’s typical in a recovery.
It’s hardly ideal for employees, but the lack of wage pressure presents an opportunity for the Fed: By keeping rates lower for longer, it might be able to reverse more of the damage done by the 2008 recession.
Many more people need jobs than the low unemployment rate would suggest. Some aren’t included because they haven’t sought work in the past month. Others are stuck in part-time jobs. Accounting for all those who are likely to rejoin the labor force or who want full-time work, it would still take about 1.8 million jobs to get the unemployment rate down to 4.9 percent -- the level that Fed officials consider full employment.
In one encouraging sign, December’s job gains have already made a significant dent in that employment gap. Here’s how that looks:
In recent weeks, Fed officials have voiced confidence that the central bank will increase its short-term target rate four times this year, bringing it to a level that by some estimates would amount to hitting the monetary brakes. Given the progress they’re making in getting people back to work, and given the wage picture, they’ll want to watch the data and stay open to the possibilities.
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