The Bureau of Labor Statistics is one of the few government agencies that was funded prior to the start of the partial government shutdown on December 21, which means we will continue to get employment and inflation data; release of other data will be delayed. Since the shutdown occurred after the establishment and household surveys were conducted during the week of the 12th, the December employment report will not include those government workers who have been furloughed.
Nonfarm payrolls are expected to rise by 170,000 in December, slightly faster than the November pace of 155,000. Private sector gains are expected to account for 160,000 net new jobs. Emergency workers who were called into action to deal with the California fires and their aftermath should provide a boost to government employment for the month.
Gains are expected to be concentrated in transportation, warehousing and healthcare where an aging population continue to support hiring at hospitals and for in-home care. Amazon staffed up in both its warehousing and delivery services, while retailers trying to compete with Amazon stepped up their online game. Labor shortages are expected to hold retail, leisure and hospitality employment in check. If my experience on the road and a short vacation are any indicator, even basic cleaning services have been compromised at many hotels.
Manufacturing employment is expected to be mixed, while construction employment should pick up. Repairs and limited rebuilding will temporarily offset a slowdown in overall housing construction. The weak spot will be mining, which is expected to contract in response to the downdraft in oil prices. The high-end housing market in Dallas has also taken it on the chin in the wake of declining oil prices.
Average hourly earnings are expected to rise 0.3%, putting year-over-year gains at 3%, a slight downtick from the 3.1% year-over-year gains we saw in October and November. The risk on wage gains is to the upside as Amazon’s move to increase the pay of its lowest wage workers to $15 per hour ripples through the economy. The Federal Reserve’s Beige Book cited the impact on other employers from Amazon’s wage hikes and increased hiring.
The rise in wages at the low end of the pay scale has been significant over the last year, and is being compounded by increases in the minimum wage at the state and local levels. Indeed, Amazon’s announcement came just ahead of changes increases in minimum wage in 20 states and 21 localities, which take hold in 2019.
The unemployment rate is expected to remain unchanged at 3.7%. Participation in the labor market is expected to hold steady at 62.9%. There is some upside risk on participation as more workers are pulled from the sidelines to fill seasonal jobs.
The data on employment is expected to confirm that the labor market remained strong in December, despite stock market gyrations. This will provide support for the Federal Reserve and its actions in a turbulent time. The Fed has already lowered its rate hike assumptions for 2019; those assumptions are likely to move down further if growth slows as much as we expect in the new year.
Copyright © 2019 Diane Swonk – All rights reserved. The information provided herein is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic, financial, investment or any other decisions. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.