It’s an election year, so every economic report is going to be filtered through the lens of political benefit. President Biden thus celebrated last Friday’s Labor Department report that employers added a solid 216,000 jobs in December, but below the top line there are signs of a softening labor market. The question is whether government spending can sustain the job growth amid a weakening economy and business investment.
The unemployment rate last month held steady at 3.7%, but the labor force participation rate (62.5) and employment to population ratio (60.1) both fell by an unusually large 0.3 percentage points.
This was owing to a disconnect between the strong payroll survey and the very weak household survey. The latter reported a decline in employment of 683,000 from November and is 317,000 lower than in August. Most of this decline reflects a shrinking labor force. The two surveys sometimes contradict each other in any single month, but they usually come back into sync over time.
The gains in the payroll survey were also revised down by 71,000 for October and November, which means the net gain was 145,000. Government, healthcare and social assistance also made up more than half of December’s new jobs. While job growth in most industries has slowed this year, government added an average of 56,000 jobs per month—more than double the average 23,000 monthly gain in 2022.
Average hourly earnings last month increased 0.4% for all private workers and 0.3% for production-level workers. It’s good news that wages are finally outpacing inflation, but the bad news is that more Americans are working only part-time. Full-time employment declined 1.5 million last month, while 762,000 more workers were employed part-time.
What this all suggests for the economy is that growth is slowing but a recession isn’t in sight. The Atlanta Federal Reserve is predicting that the economy grew 2.5% in the fourth quarter powered mostly by consumer spending, but business investment continues to be cautious. Government social-welfare spending can boost employment for a time, but these jobs don’t make people wealthier by improving productivity or living standards.
Federal government spending was $164 billion higher during the first two months of this fiscal year compared to the prior one, which means the deficit this year could top last year’s $2 trillion. Washington is spending more, but private employers are adding fewer jobs. That isn’t a recipe for long-term prosperity.
The Wall Street Journal
