A Spectacular Fed Friendly Employment Report

Written by Richard Hokenson 

Our view that December wage inflation was highly likely to surprise to the downside did not happen. For only the second time since January 2015 a big gain in the year-ago month was exceeded in the current month. Upward revisions to both October and November provided extra lift and the year ended with wage inflation as measured by Average Hourly Earnings (AHE) at 3.2% (see Chart 1). Lest anyone be concerned regarding run away wage inflation, the reality is that the average monthly percent change in 2018 was 0.26%, modestly higher than the 0.22% posted in 2016 and 2017 (see Chart 2).

If the impact of the year-ago month ends up being true for January, that would mean that January 2019 would show an uptick in wage inflation as AHE increased by only 4 cents per hour in January of last year.

The report is Fed Friendly because the civilian labor force increased by 419,000 in December which indicates that there has been more slack in the labor market than commonly perceived. This meant that the results for the full year was the strongest ever in this recovery (see Chart 3). The increase in the labor force was a result of a higher participation rate, especially for prime age workers (see Chart 4). That their participation rate has yet to reach previous highs supports our view that there is still additional slack.

The other item worthy of mention is that the foreign born labor force continues to grow at a strong pace (see Chart 5) with the result that their share of total employment vaulted to a new high (see Chart 6).



This update was researched and written by Richard Hokenson, as of January 10 2019