US wage growth dropped below 3 per cent last month for the first time since July 2018 as the economy added fewer jobs than expected, according to a key report released on Friday.
The US economy tacked on 145,000 jobs, below economist estimates for a gain of 160,000, while the unemployment rate remained at a 50-year low of 3.5 per cent.
While job growth slowed significantly from November’s robust gain of 256,000, the employment situation report released Friday by the US labour department showed the US jobs market remained stable at the end of the year.
In the 12 months to the end of December, wages rose 2.9 per cent after gaining 3.1 per cent in November, marking the first reading below 3 per cent for wage growth since July 2018. Wages for nonsupervisory workers in December grew at 3 per cent over the previous year, down from its post-recession high of 3.6 per cent year-over-year growth in October.
“The details of this report will give rise to competing interpretations as to what’s going on within the labour market, with the overall net effect unlikely to change consensus views on economic prospects and Federal Reserve policy,” said Mohamed El-Erian, chief economic adviser at Allianz
John Ryding of RDQ Economics said: “There is nothing here that changes the picture of an economy that is continuing to expand at a pace that exceeds its potential growth rate.”
During the month of December, the White House came to an agreement with China to ease trade tensions, and the Federal Reserve made it clear that it does not intend to tighten policy in 2020. Any boost from these developments is likely to show up in subsequent jobs reports.
As workers continue to return to the labour force, the employment to population ratio for prime-age workers rose slightly in December, to 80.4 per cent, just above the highs during the last economic expansion in the early 2000s.
The job gains came from the US services sector, particularly in retail, which added 41,000 jobs, and — as in November — strength in education and health. The leisure and hospitality sector added 40,000 jobs, a continued sign that Americans are confident to spend on eating out.
Manufacturing, a key political indicator for the industrial midwest, lost 12,000 jobs, with losses in both more expensive durable goods, such as washing machines, and nondurable goods, which include items such as clothing and food. Mining continued its decline, losing 9,000 jobs as low oil prices continued to drive a contraction in US shale fields.
“I think this is a good month, just not a great month,” said Adam Ozimek, chief economist at Upwork. The overall number is “short of expectations,” but “more than enough to keep up with population growth”, he said.
US equities rose to record intraday highs on Friday after the report, with the Dow Jones Industrial Average crossing 29,000 for the first time. Treasuries advanced, with the yield on the US 10-year down 1.9 basis points to 1.838 per cent, while that on the more policy sensitive two-year slid 0.4 basis points to 1.572 per cent. Yields move inversely to price.