December’s solid employment gains capped off a year marked by rising consumer confidence, discretionary spending and better-than-expected holiday sales — even as robust wage growth remained elusive.
“The job market’s done well and people feel they can actually move jobs now — that just kind of snowballed,” said Dwight Johnston, chief economist for the California Credit Union League. “It was a good year last year.”
Although the new 148,000 jobs reported by the Bureau of Labor Statistics (BLS) on Friday fell below economists’ consensus of 189,000, unemployment remained at 4.1 percent, and labor market observers were especially cheered by rebounds in manufacturing and construction jobs.
“You’re seeing a bigger share of prime-age Americans working this month, and that trend is moving up pretty sharply,” said LinkedIn economist Guy Berger, who added that an increase in more people switching jobs rather than re-entering the workforce after an absence could mask a greater increase in employer demand than the Labor Department numbers reflect.
“The vast majority of economic indicators are showing strength,” Dan North, chief economist at Euler Hermes North America, told NBC News. “You’ve got a very solid economy. Consumer confidence is still hovering around a 17-year high, and we’re finally beginning to see better disposable income growth."
Private-sector payroll data released on Thursday by the ADP Research Institute and Moody’s Analytics reported a leap of 250,000 jobs added in December, with gains spread broadly and a strong showing by small and mid-size businesses.
“That’s good news because the perception is that large businesses will be better able to take advantage of the tax cuts,” said Mark Hamrick, Bankrate.com’s senior economic analyst.
While economists differ on the likelihood and strength of any impact corporate tax cuts might have on hiring, Hamrick said the performance of smaller businesses could experience a sort of halo effect if their larger counterparts pick up steam in the coming months.
“To the degree that if they do more of the heavy hiring lift in the future, you’d still have positive performance on the small and medium businesses,” he said.
A growing labor force is bolstering confidence, a positive feedback loop that has the potential to bolster retailers’ bottom lines.
Expectation of higher wages is one major reason consumers spent more this holiday season.
“The labor market is really booming in terms of job gains, and consumer confidence remains quite strong,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “At the end of 2017, the consumer is feeling good about the economy, therefore confidence remains quite strong.”
“From a paycheck perspective, the expectation of future growth is there,” Yildirmaz said. Economists say that expectation is a major reason why consumers were willing to spend more this holiday season. Retail sales from Nov. 1 to Dec. 24 rose by nearly 5 percent, setting a record in terms of dollars spent, according to Mastercard SpendingPulse.
Even those gains weren’t enough to stop shrinking employment in the retail sector, though, which lost 20,000 jobs last month. Small gains in places like appliance and furniture stores weren’t enough of a counterweight against the 27,000 jobs lost at general merchandise stores.
The other riddle is why wage growth remains sluggish in the face of near-full employment. Although December’s nine-cent gain is better news than a mid-December report from the BLS that found real average hourly earnings fell by 0.2 percent from October to November, this still puts annualized wage growth at just 2.5 percent.
Some data sets put the current figure even lower. According to Glassdoor.com, December wage growth was roughly flat year-over-year at 1.1 percent, but chief economist Andrew Chamberlain said demographic shifts could be responsible.
“There’s a compositional change in the labor market, where if you have sidelined workers rejoining or a lot of younger workers joining in, that churning can explain pay getting pulled down,” he said.
Both Chamberlain and North noted that, although average wage growth lags expectations, increases at the median are healthier. “Median pay has been rising in all 10 metros we track,” Chamberlain said.
As this holiday season shows, American shoppers aren’t waiting for this evidence in their own paychecks. The promise of more, better-paying jobs is enough to keep the spending momentum going, possibly for months in the future.
”Certainly, this optimism can carry us another six months, at least,” Johnston said.