December 2014 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment increased by 252,000 jobs in December -- better than expectations of 230,000. Data for the prior two months was also revised up by a combined 50,000 jobs. Employers created 2.95 million new jobs in 2014, the fastest annual growth rate since 1999’s 3.2 million increase. Meanwhile, the unemployment rate (based upon the BLS’s household survey) dropped 0.2 percentage point, to a 6½ year low of 5.6%; regrettably, once again that piece of seemingly good news was more a function of 456,000 people dropping out of the labor force than workers finding employment.

The disparity between the establishment survey (+252,000 jobs) and the household survey (+111,000 jobs) continued in December, but the two reports were not as wildly inconsistent as had been the case in November (originally reported as ES:+321,000; HS: +4,000). Still, “once again we are in a situation in which the establishment survey and the household survey are at odds,” wrote analyst Mike Shedlock. “Over time these fluctuations tend to smooth out. The question, as always, is ‘in which direction?’”

All sectors of the economy saw employment gains last month, although those gains were concentrated in low-paying industries. On a more encouraging note, construction employment rose by 48,000 (the largest gain since January) while manufacturers added 17,000 workers (down from +29,000 in November). 

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Other internals of the report were mixed. For example, the employment-population ratio remained stable at 0.592 for a third month. As mentioned above, the number of employment-age persons not in the labor force jumped by 456,000 to a new peak just shy of 92.9 million. We should point out that those leaving the labor force are not entirely (perhaps not even predominantly) retiring Baby Boomers, as the ranks of the employed in the 55-and-over age cohort edged up to an all-time high of almost 32.9 million in December. 

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The labor force participation rate dropped 0.2 percentage point, matching its multi-decade low of 62.7%. Average hourly earnings of all private employees fell by $0.05 (the biggest drop since 2006), resulting in a 1.7% year-over-year increase (the smallest 12-month gain since October 2012). For all production and nonsupervisory employees (pictured above), wages rose by $0.06/hour (+1.6% YOY). With the CPI running at an official annual rate of 1.3%, wages are technically keeping up with price inflation.

The retreat in hourly earnings is puzzling. Some wonder whether last month's broad-based fall, which was led by a record 1.2% plunge in the retail trade sector, was a seasonal fluke that will be revised away. “There is no obvious fundamental economic factor that would contribute to today's number,” said JPMorgan economist Michael Feroli. “We are disposed to view this decline as a one-off.” 

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Finally, full-time jobs increased (+427,000) while part-time jobs decreased (-269,000). Full-time jobs have been trending higher since December 2009, but have yet to recapture the pre-recession high. Part-time jobs, by contrast, have been stuck in a channel between roughly 27 and 28 million.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.