Job growth slowed last year, partly reflecting a tighter job market. However, wage growth, while higher in 2019, has remained moderate, much lower than one would expect given the low unemployment rate.

Private-sector payrolls averaged a 162,000 monthly gain in 2019, down from 215,000 in 2018. However, next month’s benchmark revisions to the establishment survey data (payrolls, hours, earnings) will reduce the March 2019 level of payrolls by about 500,000 (or -0.3%), which will push 2018 job growth lower. Slower global growth and trade policy uncertainty likely had an impact on job growth in 2019, but tighter job market conditions was likely a bigger factor.

Scott Brown
Click here to enlarge

The unemployment rate held steady at 3.5% last month. Benchmark revisions to the household survey data were minor. For the key age cohort, those aged 25-54, the unemployment rate remained at 3.0%, but the employment/population ratio hit 80.4%, the highest since the 2001 recession. The ratios for teenagers and young adults (20-24) remain below pre-recession levels. The rate for older workers has gradually trended higher.

Scott Brown
Click here to enlarge

Despite the tight job market, average hourly earnings rose modestly in December, moderating the year-over-year gain: +2.9% overall, and +3.0% for production workers. That’s a lot lower than one would expect in comparison to previous periods of low unemployment. The decline in union membership and a greater concentration of large firms explains part of that, but it does suggest that, with little danger of higher inflation, the Fed should remain accommodative as labor is reallocated to its highest and best use in the years ahead.

Data Recap – Iran’s missile attack on U.S. targets in Iraq had a short-lived impact on the financial markets as tensions quickly de-escalated. Nonfarm payrolls rose a little less than anticipated. Wage growth moderated despite low unemployment.