The employment report that was released last Friday had both positive and negative news. As I have mentioned previously, this report is based on two surveys, so sometimes the data can conflict.
The good news was that the unemployment rate dropped from seven percent in November to 6.7 percent in December. The not so good news was that payrolls grew only 74,000 in December versus 241,000 in the prior month.
The unemployment rate has dropped from 7.8 percent to 6.7 percent during the past 12 months, for an average decline of .1 percent per month. However, on a month-to-month basis these figures tend to jump around, so I would not expect a decline of this magnitude for next month. In addition the bulk of the decline was due to a decrease in the labor force, which will probably not be repeated in January.
The other survey showed job growth being only 74,000 for December, which was a concern for some investors. However, some of the weakness in December may have been weather related, as construction employment fell for the month. For all of 2013 employment growth averaged 182,000 new jobs being created per month, almost identical to the 2011 and 2012 figures.
Another survey that was released last week was the ADP report on private employment. This survey registered an increase of 238,000 jobs for December versus 215,000 in November. Given that this report was strong for December could imply that the Labor department report for last month was an aberration.
Looking at new jobless claims numbers the data has improved over the past year. Weekly figures are back to where they were prior to the last recession, and are consistent with a normal labor market.
The one area of the labor market that has remained weak is the participation rate, which has fallen in recent years. Even as jobs are being created, people have left the labor force, which has allowed for the unemployment rate to drop.
Some of the decline can be attributed to a greater share of people 55 to 64 in the labor force, who may have retired, or are on disability. However, even among the prime working age group from 25 to 54 their participation in the labor force has also declined.
All of the figures I have just cited are related to the national economy. In California the trends have been following the national figures with the unemployment rate coming down. However, the unemployment rate for this state and Los Angeles County remains well above the national average, even with the California economy rebounding over the past year.
Looking forward for this year trends in the labor market will probably remain similar to what we have experienced in recent years. That is the unemployment rate should continue to drop, and probably on a national level should be around six percent by the end of the year. A normal unemployment rate is typically about five percent.
Would expect job growth to continue to increase at a pace averaging close to 200,000 jobs per month. In essence, believe that the 74,000 increase that occurred in December was an outlier, as other data showed the labor market doing better.
Wage gains have remained sluggish over the past year, averaging about two percent per year. Overall wage gains will probably be a little better this year, as the unemployment rate continues to fall. Of course people who are in industries that are expanding will do better. Likewise state and education workers will see gains, as California’s tax revenue has increased from a stronger stock market.