The final jobs report for 2016 shows that the U.S. economy has added just over 2 million jobs last year. The Labor Department reported on Friday morning that the U.S. economy added 156,000 jobs in December, while the unemployment rate ticked up slightly to 4.7 percent. The numbers slightly missed expectations: Economists surveyed by The Wall Street Journal were expecting 183,000 jobs to be added.
Nevertheless, the December jobs report concludes a year of steady economic growth: For most of the year, the unemployment rate has been hovering just under 5 percent, the lowest levels since 2007. Although the pace of employment growth in 2016 slowed compared to 2014 and 2015—the height of the economic recovery—last year’s numbers put outgoing President Barack Obama ahead of George W. Bush (but behind Bill Clinton) when it comes to job creation.
In 2009, when Obama took office, the U.S. labor market was facing record-high unemployment—the highest since the early 1980s recession—and job losses due to the financial crisis. In January of 2009—the month Obama was inaugurated—the American economy lost 791,000 jobs. Now—eight years later—the U.S. has experienced 75 consecutive months of job growth.
“When President Obama took office we were losing 800,000 jobs a month. The job loss associated with the Great Recession was enormous, but a record long recovery has put people back to work including the long-term unemployed and those who left the labor force,” said Betsey Stevenson, a labor economist at the University of Michigan and former member of Obama’s Council of Economic Advisors, in an email. “Unemployment is low, wages are rising, and prime-age labor-force participation is recovering.”
Wages were an especially important indicator in 2016, since the improving labor market should, theoretically, increase pay for American workers. There’s been some improvement on that front: In December, average hourly earnings reached a high of $26.00, compared with $24.76 in January of this year. For the year, wage growth amounted to 2.9 percent—the strongest since the recession.
Harry Holzer, former chief economist of the U.S. Department of Labor and author of Where Are All The Good Jobs Going?, echoed Stevenson’s sentiments. “The job market has almost totally recovered from its devastating decline during the Great Recession … significant wage growth, which was lacking early in the recovery, has returned,” he said in an email.
Job creation has been particularly good in the private sector. “During the past 8 years, the labor market has steadily created jobs—adding 11 million jobs. Today, the labor market is tightening, and we are approaching near full-employment,” said Ahu Yildirmaz, the lead economist and head of ADP Research Institute (which puts together the private-sector jobs report). Yildirmaz says that according to ADP’s data, small and mid-sized companies in the U.S. created the most jobs since 2008.
Still, several sectors—such as energy and manufacturing—continue to struggle. Stevenson says that the trouble in these sectors will require innovative ways of approaching the changing job market. “The challenge for the future will be solving the mismatch between the types of jobs people used to have and the types of jobs the economy is currently creating,” she said.
When he takes office later this month, President-elect Donald Trump will be inheriting a strong economy. During the campaign, Trump often painted a dire portrait of the American economy despite statistics showing a strong labor market, an increase in American household incomes, and rising consumer confidence.
Critics of Obama’s job market performance often point to the drop in labor-force participation and the rise in underemployment as weak spots in the U.S. labor market, as proof that there’s still room for improvement. While labor-force participation has seen some declines in the past few years, it was steady throughout the year. In December, it hovered at 62.7 percent, which is near a 38-year low. The root cause of declining participation remains disputed, with demographics and discouraged workers cited as some of the possible explanations. In 2017, the labor-force participation number will likely remain a major focus.
“About half of the decline reflects Baby Boomers whose retirements we anticipated; it’s the other half, among prime-age workers, that we worry about most,” said Holzer. “It is possible that the labor-force participation rate among prime-age workers might improve just a bit more. But the improvements will be limited for two reasons: First, we are approaching the limit in labor supply of workers who are available and who have the skills needed for existing openings; and second, growth in demand will be limited as interest rates rise.”
Yildirmaz at ADP also points to the limits in labor supply: “The greatest challenge employers will face in 2017 will be finding skilled workers in the tightening labor market,” says Yildirmaz. A recent ADP study found that 80 percent of employers believe their top management challenges stem from the shortage of skilled workers.
Overall, 2016 has been a good year for the U.S. labor market. Looking forward to 2017, there’s evidence that the job market can continue to gain strength. Some economists expect that President-elect Trump’s promised fiscal stimulus will bring short-term job growth. But with the Federal Reserve likely raising interest rates to keep inflation in check, the impact of the stimulus on long-term growth might be hampered. In the recently released minutes of the latest Federal Reserve Open Market Committee meeting, members said that potential fiscal stimulus from the new administration would inform how the committee chooses to adjust interest rates in the future.
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