November: A Good, but Not Perfect, Jobs Report

After a year of solid—if at times uneven—job growth, 2016 looks like it will close on an economic high note. On Friday morning, the Labor Department reported that the the unemployment rate dropped to 4.6 percent—the lowest since before the recession. The U.S. economy added 178,000 jobs in November, meeting the expectations of economists surveyed by The Wall Street Journal who anticipated that 180,000 jobs added.

The numbers are once again indicative of steady economic growth, but there’s less positive news mixed into the report as well: While the number of jobs added and the unemployment rate bode well for the state of the economy, economists have been looking for wage growth and an increase in labor-force participation this year, both of which would have indicated that the labor market is not just growing, but strengthening. A tightening labor market would produce better pay for American workers and allow those who dropped out of the workforce during the recession to return to work. In November, both of those numbers were down.

For wages, some improvement has happened: In recent months, average hourly earnings reached a high of $25.92, compared with  $24.76 in January of this year. October’s wage growth, at 2.8 percent, was the strongest reading since the recession. But in November, average hourly earnings disappointingly fell 3 cents, to $25.89, following a 10-cent increase in October and an eight-cent increase in September. This slowdown, which was somewhat expected, brings the overall wage growth in the past 12 months to 2.5 percent. But that rate has been fairly constant throughout 2016, which is a positive sign.

Labor-force participation ticked down slightly to 62.7 percent, near a 38-year low. The root cause of declining participation remains disputed, but there are several reasons why this number may not have improved as economists hoped. The first is related to demographics: Older Baby Boomers are dropping out of the workforce by retiring. Another more dreaded factor is that the number of discouraged workers—Americans who’ve lost jobs but aren’t returning to the labor market to look for work—climbed back up to 591,000 in November, after hitting a low in October. Yet another piece of this economic mystery is related to questions about gender and work: Economists still don’t have a good handle on why prime-age men aren’t looking for work, and whether rising childcare costs is the reason women are dropping out of the labor market. Next year, labor-force participation figures will remain a major focus, as economists hope that the economy can at least stem—if not reverse—the decline.

This jobs report is the last before the Federal Reserve’s final meeting of the year. The U.S. central bank has yet to raise interest rates in 2016, most likely due to the lack of inflation throughout the year, but the Federal Open Market Committee (FOMC) has been hinting at a December rate hike for the past few months. While the Fed left interest rates unchanged at its November meeting, the recently released minutes from that meeting indicated that most FOMC members thought “it could well become appropriate to raise the target range for the federal funds rate relatively soon” as long as U.S. economic indicators continue to hold the current course. Many analysts believe that a solid jobs report, such as this one, ensures a rate hike before the year’s out.

Overall, 2016 has been a good year for the U.S. labor market. The American economy has been adding jobs for 74 consecutive months, and there’s evidence that it can continue to gain strength in 2017.