Employers added 252,000 jobs in December, beating expectations but with the bulk of the job gains coming from jobs in the secretarial/administrative assistant pool and the restaurant wait staffs.
The unemployment rate also declined to 5.6%, in large measure driven by declining workforce participation, dropping to 62.7%in December, a rate not seen since December 1977. The number of Americans not in the labor forced soared by 451,000 in December. This is is the primary reason why the number of uenmployed Americans dropped by 383,000.
Another bad sign, wages decreased in December. Average hourly earnings for all employees on private nonfarm payrolls decreased by 5 cents to $24.57 – the biggest drop in eight years.
Analysts had expected a 0.2% gain in wages, but got a 0.2% drop – meaning most of the job gains were in low-paying retail and service jobs.
“The solid December jobs report provided a strong finish to a good year for the 2014 labor market. The job gain of 252,000 was in line with the average monthly gain for 2014, the best year of job growth since 1999,” said Doug Duncan, chief economist for Fannie Mae. “Other aspects of the report were underwhelming. In particular, a decline in average hourly earnings left year-over-year growth at just 1.7%, the smallest since late 2012, while the drop in the unemployment rate to 5.6%, the lowest level since June 2008, accompanied a slip in the labor force participation rate to 62.7%, which tied for the worst since October 1977.
“So far, the diminishing slack in the labor market has not yet translated into stronger wage gains, which sends a disappointing signal to the housing market. We fear that housing may, again, lag the progress of the overall economy this year, as evidenced in results from the Fannie Mae December National Housing Survey, which shows a flat-line in consumer housing sentiment amid rising optimism in the general view of the economy,” Duncan said. “While we expect economic growth to strengthen to an above-par pace this year, our view for the housing market remains cautious, as we believe that meaningful income growth needs to occur to spur household formation, which has been frustratingly anemic in the current economic expansion. That dependence on income growth acceleration means the economy should drag housing upward rather than housing being a leader in growth acceleration.”
On a year-on-year basis, wages grew just 1.7% in December, the smallest yearly gain since October 2012.
One bright spot for real estate, construction added 48,000 jobs in December, well above the employment gains in recent months. Specialty trade contractors added 26,000 jobs in December, with the gain about equally split between residential and nonresidential contractors.