Another Upbeat Report on Job Market Gains; Real Wages Finally Edge Up

Private employers continued to add to their payrolls in January, boosting employment by 267,000.  This is slightly faster than the average pace of growth in the previous 12 months, indicating that the good news on private job gains in 2014 continued into 2015.  Robust gains in the private sector were somewhat offset by payroll losses in the government sector, which shed 10,000 workers in January 2015.  Private companies have added to their payrolls for 59 consecutive months, boosting total employment by 11.8 million.  Over that same period, government payrolls fell in 37 months, including January, and public sector employment shrank 685,000.

Annual revisions in the payroll numbers increased BLS’s estimates of job gains in 2014.  The additions were especially large for November and December.  The new estimates added 70,000 to payroll gains in November and 77,000 to gains in December, bringing employment growth in those two months to 423,000 and 329,000, respectively.  The robust job growth in the last quarter of the year is a bit hard to reconcile with the moderate pace of GDP growth estimated for the same quarter (+2.6 percent). Either worker productivity plunged or we could see an upward revision in the fourth-quarter GDP estimate. 

The BLS survey of employers also uncovered some encouraging news on wage gains. Hourly pay in the private sector edged up $0.12 to $24.75 in January and has increased 2.2 percent over the past 12 months. Although modest, this increase represents a small improvement over nominal wage gains earlier in the recovery. Consumer price increases over the previous 12 months totaled a bit less than 1 percent, so workers’ real hourly earnings have climbed more in the past year than in any other year of the recovery. To be sure, much of the improvement is explained by the unexpected dip in energy prices, but at least real wage earnings are now growing instead of stagnating.

Employment gains continued across a wide variety of industrial sectors, including manufacturing, construction, retail trade, financial services, professional and business services, education, and the health sector. Construction companies added 39,000 to their payrolls in January. They have added an average of 26,000 payroll jobs a month since last January, their fastest rate of growth since 2006. Since reaching a low point in January 2011, employment in the construction industry has rebounded 16 percent. 

Employment estimates in BLS’s household survey confirmed the strong job numbers reported in the employer survey.  After adjusting for new Census Bureau estimates of population growth in 2014, the household survey shows a gain in adult employment of 435,000 in January.  The rapid growth in employment was not fast enough to reduce the unemployment rate, however, because the labor force grew 703,000 in January.  The entry of new job seekers pushed up the unemployment rate slightly to 5.7 percent. 

If this trend continues for several months, it would be news. A disappointing feature of the recovery so far is that the labor force participation rate has remained low even though it has become steadily easier for job seekers to find work.  Between December 2007 and December 2014, the adult participation rate fell 3.3 percentage points (from 66.0 to 62.7 percent).  A little more than half the drop can be explained by population aging. As Baby Boomers reach retirement age, fewer of them can be expected to work or look for work. But even accounting for population aging, we have seen little recovery in the percentage of adults who are looking for work. Improvements in real wages will be needed to bring the participation rate back to a healthy level.