The U.S. economy entered 2016 with strong momentum as employers added 292,000 jobs in December, pushing the annual number last year to 2.7 million.
That full-year number reported by the Labor Department on Friday was slightly below the 3.1 million jobs added in 2014, but taken together they represent the top two years for job growth since 1999. The unemployment rate held steady in December at 5 percent, and both the size of the workforce and the participation rate rose last month.
“This should allay worries that the U.S. economy will be derailed by the troubles in China and the rest of the emerging markets,” said Mark Zandi, chief economist for Moody’s Analytics.
Here are three important takeaways from Friday’s numbers:
Hiring is accelerating
Statisticians revised upward the October and November numbers by a combined 50,000. October’s job totals were revised to 307,000, November’s to 252,000. That means October and December were the two strongest months of the year and that the final quarter of 2015 was sizzling for the jobs market.
The better paying white-collar category of professional and business services led all sectors, adding 73,000 jobs in December. Temporary help services, often a precursor to more hiring, rose by almost 35,000 in the month. Construction added 45,000 posts and health care employment continued its steady climb, rising by another 39,000 jobs.
“The breadth of the job gains across almost every industry is also very impressive, highlighting the durability of the job growth,” said Zandi. “The American job machine is in very high gear.”
Wage growth was mostly flat last month, a disappointment given its improvement over the second half of 2015. Looked over a 12-month range, however, worker pay grew faster than the rate of inflation, in effect stretching workers’ earnings a bit further.
“While workers saw no wage growth from November to December, year-over-year wage growth of 2.5 percent is strong and when combined with the job creation leaves one conclusion: People are finding jobs and getting paid more for them,” said Beth Ann Bovino, U.S. chief economist at Standard & Poor’s Ratings Services.
The U.S. labor market remains on fire.
Neil Dutta, head of U.S. economics for Renaissance Macro Research
When wage growth takes off, and by how much, are important questions. Under more normal circumstances, a hot labor market means there is demand for workers, and it gives them more power to demand higher wages or move to a new, better-paying job.
That hasn’t happened in the current economic expansion, and economists are puzzled over why not. Wage growth is also important to consumption, which drives roughly two-thirds of U.S. economic activity.
Months of strong job numbers suggest there should be more economic growth than the 1.5 percent forecast for the final quarter of last year. Many economists still think 2016 will see modest economic growth.
“Unfortunately, today’s job report tells us very little about the direction of job growth from here,” Scott Anderson, chief economist for Bank of the West in San Francisco, cautioned Friday. “Slowing U.S. and global . . . growth in the fourth quarter and moderate 2.0 percent U.S. growth in the first half of 2016 will likely weigh on job creation in the months to come.”
The good workforce numbers also stand out against the horrible start of 2016 for Wall Street, which has marked huge losses in the opening week, in part because of financial turmoil in China.
Stocks historically reflect expectations of economic performance six months ahead. The blistering pace of job growth at the end of 2015 suggests the economic recovery should continue powering forward, which is good for stocks.
Whether economic growth this year is modest or exceeds expectations may come down to the degree of wage growth.
“More jobs and stronger wage growth would provide a strong tailwind for consumer spending, which has been the economy’s principal source of growth,” said Zandi. “Consumers will continue to power the way forward this year.”
December by the numbers
Professional and business services: Up 73,000
Manufacturing: Up 8,000
Leisure and hospitality: Up 29,000
Health care: Up 39,400
Construction: Up 45,000
Temporary help services: Up 34,400
Transportation and warehousing: Up 23,100
Retail: Up 4,300
Financial services: Up 11,000
Government jobs: Up 17,000
Source: U.S. Bureau of Labor Statistics