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January 4, 2019 Blog 2 min read
Job growth accelerated in December, despite the slowing economy. Mr. Market is worried, but – at least for now - employers are not.
January 2019 Unemployment ChartThe economy has been slowing, but someone forgot to tell the labor markets. Employers, it would seem, didn’t get the memo from Mr. Market that it’s time to tighten their belts.

Job growth accelerated in December as the economy added 312,000 to payrolls, well above expectations for 180,000. Upward revisions to October and November also buttressed those numbers by an additional 52,000, bringing the average three-month gain to 254,000.

Counterintuitively, the unemployment rate rose to 3.9%, despite exceptionally strong job creation. In fact, it’s the strength of the jobs market that is pulling more workers into the labor force, lifting the labor force participation to 63.1%. The result is an increase in the number of unemployed individuals in the workforce, even as the number of employed increased as well.

Average hourly earnings also surged in December, rising 0.4%. Over the past year, wages rose by 3.2%. It’s been a slow grind to get to this point, but the scarcity of skilled labor and the abundance of available jobs is lifting wages at a faster pace. The three consecutive months of trailing one-year wage growth north of 3% are the first such string in nearly a decade.

This final jobs report of 2018 completes what was a very strong year for the labor market, as the economy added over 2.6 million jobs – the third best calendar year tally since the recovery began in 2009. Moreover, the jobs market didn’t stumble into the finish line, as job creation in the last three months were the high-water mark in 2018.

While the report is clearly positive, there is a potential warning to be taken from it. If the economy slows further as expected, job creation is certain to falter as well. Expectations for the coming months should likely be tempered accordingly.

The question in part will be whether or not strong labor markets and wage growth can provide an additional boost to the consumer sector, supporting spending growth and propelling the economy forward. Most measures of the collective consumer mood remain upbeat, although the impact of the recent swoon in equity markets hasn’t been fully digested.

The bottom line is that economic conditions have moderated, but questions remain about whether this represents a slowdown to trend growth that can be sustained or the early stages of a more severe softening.

The capital markets are baking in an increasing probability that it is the latter, but at least for now, hard economic data remains expansionary, and in the case of the jobs market, the picture is still quite strong.
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