U.S. payrolls rise solidly, but wages drop
U.S. job growth increased briskly in December and the jobless rate dropped to a 6-1/2 year low, but wages slipped in the latest sign a tightening labor market has yet to give much of a boost to workers.
Nonfarm payrolls increased 252,000 last month after an upwardly revised 353,000 jump in November, the Labor Department said on Friday. The unemployment rate fell 0.2 percentage point to 5.6 percent, partly because people left the labor force.
But a five cent drop in average hourly earnings, which nearly erased gains seen in November, took some shine off the otherwise mostly upbeat report. Over the past year, earnings rose only 1.7 percent, the weakest 12-month showing since October 2012.
Economists said the data buttressed the case for the Federal Reserve to take a go-slow approach to raising interest rates.
“We are once again looking at a situation where people are getting hired but we are not seeing the wage increases the Fed would like to see,” said Kate Warne, investment strategist at Edwards Jones in St. Louis. “That keeps the Fed on hold.”
U.S. stocks opened flat before turning lower, while prices for U.S. debt rose as traders pushed back their expectations for when the U.S. central bank would raise rates.
Some economists said the data should keep the Fed, which has kept overnight borrowing costs near zero since December 2008, on track for a rate hike around mid-year. Futures markets continued to point to a rate increase in September, although chances policymakers would move later rose.
“This is probably a good enough number to allow the Fed to stay on course in terms of adjusting policy,” said Peter Cecchini, managing director and chief market strategist at Cantor Fitzgerald in New York.
December marked the 11th straight month of payroll increases above 200,000, the longest stretch since 1994. For last year as a whole, the economy generated 2.95 million new jobs, the strongest showing for any year since 1999.
Overall, the data suggested the economy was positioned for solid growth this year, despite troubling weakness in some economies overseas.
Adding to the report’s generally strong tenor, a total of 50,000 more jobs were created in October and November than previously thought.
Economists were struck by the weakness in wages given the tightening jobs market. The unemployment rate dropped by more than a percentage point last year, and is now near territory Fed officials consider commensurate with full employment.
The drop in wages in December was widespread across industries, but most acute in the mining and logging sector.
Christoph Balz, an economist at Commerzbank, said soft earnings were a hangover from the 2007-2009 recession. “Firms (were) unable to reduce wages during the recession, and they must now work off a stockpile of pent-up wage cuts.”
Even so, economists expect to see a spark soon as the labor market continues to tighten.
“The wage story should look much better at the end of 2015,” said Dan Greenhaus, chief strategist at BTIG in New York.
Most of the measures tracked by Fed Chair Janet Yellen to gauge the amount of slack in the labor market continued to point to tightening conditions in December.
A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, fell two-tenths of a percentage point to 11.2 percent, the lowest since September 2008.
The ranks of the long-term unemployed continued to shrink in December. Almost two-thirds of the decline in the level of unemployment last year was among the long-term unemployed.
But the labor force participation rate, the percentage of the working age population who either have a job or are looking for one, dropped back to the 36-year low of 62.7 percent reached in September.
Job gains in December were dispersed across all sectors. Construction employment rose by 48,000, the largest gain since January, while manufacturers added 17,000.
Government employment increased 12,000.
The average work week was steady at a 6-1/2-year high of 34.6 hours.
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