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  Dr. Sohn's Commentary

Payroll Report for December

January 05, 2018

The economy added smaller-than-expected 148,000 jobs in December a sharp slowdown from the previous two months affected by the summer hurricanes. The employment gains were widespread throughout the economy except retail. The unemployment rate stayed at 4.1 percent. Wage gains rose at a faster pace of 0.3 percent for the month amounting to 2.5 percent from a year ago.

The fly in the ointment was the retail sector. This is hard to understand because all indications were that the holiday shopping season was a winner.  Most likely there will be a significant revision in the number later. All told, over 2.06 million jobs were created in 2017; it trails 3 million in 2014. Business optimism on the economy emanating in part from the recent tax package will continue to be tailwind for the economy.

Aside from the problem with the retail number, a slowdown in employment gains have been expected. The economy is hovering around full employment. Skilled labor shortages are acute and businesses rank labor shortages as their top concern. It is also disappointing that the labor force has shrunk by 429,000 and the U6 jobless rate has inched up.

The wage inflation may have begun the long-waited acceleration rising 0.3 percent. As the economy marches upward hovering around full employment, the wage puzzle has begun to fall in place. The labor market, especially in skilled category, continues to tighten forcing employers to hike wages. As job growth in leisure and hospitality, the lowest-paying category of the employment market, slows, the average hourly earnings should rise more rapidly.

Rarely, businesses feel this positive about the economy. SMEs are more comfortable about the economic outlook and willing to hire people. In response to the tax cut, better demand and easing credit conditions, SME hiring has been a source of employment strengths and layoffs are slowing.

Despite the weak job report, the wage number has given the FOMC a reason to march ahead with the planned hikes in the interest rate and the balance-sheet restructuring. The central bank believes that the economy is on a solid ground justifying tighter policy.


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