US Job creation slows in 2019 on manufacturing decline and trade

• Payrolls add 145,000 new positions missing consensus forecast.
• Annual wages gains fall to 2.9%, first month below 3% in since 2018.
• Unemployment remains at 3.5% a five decade low.
• Fed rate policy to stay in neutral awaiting first half performance.

The US economy created fewer jobs than forecast in December and less in total than in the prior year but employers have now added workers for a record decade and unemployment remained at a 50 year record.

American firms hired 145,000 new workers last month, and revisions to the two prior months lowered totals by 14,000, reported the Bureau of Labor Statistics on Friday. Analysts had anticipated 164,000 new positions. The U-3 unemployment rate was unchanged at 3.5%.

Non-farm Payrolls

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Job creation declined 24% last year with the monthly average of new hires falling to 176,000 from 233,000 in 2018. The three-month moving average for non-farm payrolls in December was 184,000 down from 200,000 in November and 188,000 in October.  

Annual wages rose 2.9% in December, the smallest improvement since July 2018. Wage gains over the past 15 month have averaged over 3% for the best earnings stretch since the end of the recession in June 2009.  Economists has forecast a 3.1% rise in annual wages.

Average Annual Earnings

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Recession fears prevalent last summer have largely receded as economic growth has stayed above 2% and May’s combined weakness in NFP at 72,000 ADP at 41,000 proved to be a normal variation in the statistic.

The Federal Reserve’s three 0.25% rate reductions from July to October may have helped stabilize expectations damaged by the tariff and trade war between the US and China that was at its height in the summer.   Fed policy moved to neutral after the final October rate cut and the bank’s year end economic projections have rates on hold through the end of 2020.  

Last year’s labor market performance and its slightly disappointing finish is unlikely to change the FOMC’s view of the economy in 2020.  The US-China trade deal may promote higher domestic and global growth and should remove the barrier to business sending that dropped investment to nearly flat in the second half of 2019.    

The US economy created 2.11 million jobs last year. That was a 21% reduction from the 2.68 million in 2018 and placed 2019 eighth in the last decade for employment growth.  The decline in hiring partially reflects the scarcity of workers in a very tight labor market and a sharp drop in new manufacturing employment. The number of unfilled jobs continues to grow. Factories added 264,000 new workers in 2018 but that plunged to 46,000 last year as business investment and spending were curtailed by the US-China trade dispute and falling global growth.

The U-6 or underemployment rate dropped to 6.7% in December, a record low for this measure which began in 1994. This gauge counts as unemployed anyone who is jobless and has looked for work in the prior 12 months. The more commonly cited U-3 rate above limits its unemployment count to those who have sought work in the month before the survey.

Labor force participation was steady at 63.2% and the work week was unchanged at 34.3 hours.

December has not been the best month for payrolls over the last decade. In the last ten years the year-end payroll figures have averaged 142,000 missing the consensus forecast in seven out of 10 months by an average of 35,000.  Exceptionally strong months in job creation have often been followed by a softer performance without disturbing the overall trend.