Waiting for Wage Growth

The December jobs report capped a banner year for the US labor market. As compared to a year earlier, public and private employers added just short of 3 million net new jobs, the best showing since 1999.  Private sector employment accounted for a disproportionate 97 percent of the net increase for the year and 95 percent of the increase over the last month. Professional and business services, which masks a very wide range of activities, posted a healthy increase in December, as did education and health services, and leisure and hospitality. Financial activities remains a laggard, trailing the broader employment recovery and still short of its pre-crisis peak.

The unemployment rate, a dubious measure of labor market health, nonetheless declined by 110 basis points over the year. At 5.6 percent, the unemployment rate is well below the 6.5 percent monetary policy threshold announced by the Fed two years ago. Alternative measures of unemployment, running the technical gamut from U-1 through U-6, all declined, as well. While it offers an incomplete picture of market conditions, the conventional measure of unemployment does convey that the rationale for unconventional monetary policy has largely dissipated. A second-quarter increase in the fed funds rate looks more likely.