Stocks Weak, Job Market Strong

The first four trading days of the year were the worst ever for the Dow and the S&P 500, but fear not: the U.S. economy is alive and well! Look no further than to the December jobs report, which came in stronger than expected. The economy added 292,000 jobs and the previous two months were revised higher, which made 2015 the second best year for job creation since the 1990’s.

For all of the anxiety over markets and the global economy in 2015, there were 2.65 million jobs created, or a monthly average of 221,000, shy of the 2014 level of 260K per month, but solid nonetheless. The unemployment rate remained at 5 percent, the lowest level since the spring of 2008.

The top line results do not mean that all is perfect with the US employment landscape. Indeed, there are still stubborn problems that persist. For example, wages slid by a penny in December and it was only because December 2014 wages were so weak that the year over year increase came in at 2.5 percent. We’ll need to see 2016 data before understanding whether employers are paying more in compensation.

The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at a still-high 2.1 million in December and has shown little movement since June. Thankfully, there was improvement in the first half of the year, so the number of long term unemployed was down by 687,000 in 2015. It was a similar story for the 6 million part-time unemployed – there was little movement in December but over the year, their ranks shrank by 764,000.

The civilian labor force participation rate, which is the percentage of the working age population in the labor force, edged up in December to 62.6 percent, but too close to 40-year lows for anyone to feel good about it. While about half of the post-recession decline in the rate is due to demographics, the low level indicates that many Americans have left the labor force because they are frustrated.

What does this report tell us about the state of the US economy as we closed out 2015? Although growth is certainly stellar—GDP likely advanced by 2.25 percent last year, essentially matching the previous three years’ rate—it was strong enough to produce a slew of jobs in a variety of sectors. Annual gains were robust for in professional and business services (+605K), construction (+263K), health care (+480K), and food services and drinking places (+357K).

The weakest parts of the economy are those that are associated with energy and manufacturing. With crude oil prices down by over 30 percent in 2015, the mining industry lost 129,000 jobs in 2015. And with the strength of the US dollar and weakness in Asian economies, manufacturing employment was little changed (+30,000), following strong growth in 2014 (+215,000).

A rotten first week for stocks notwithstanding, fears over the US economy falling over a cliff may be overblown.