What to Watch on Jobs Day: A 2015 Wrap Up
With the last jobs report for 2015 coming out tomorrow, let’s step back and put it in the context of the entire year—and of the recovery as a whole. If December’s numbers come in as expected (analysts are predicting job growth around 215,000), that will be an indication of a relatively strong labor market in 2015, especially compared with the Great Recession and the beginning of the recovery. While the economy has improved, when you look at the peak in 2007 or the stronger economy of 2000, it is clear we still have a way to go before we reach full employment.
Job gains in 2015 were slower than 2014, but they remained solid—slowly eating away at the slack created by the Great Recession. The unemployment rate, and the long-term unemployment rate, measurably declined. The unemployment rate fell from a January to November average of 6.2 percent in 2014 to 5.3 percent in 2015, while the long-term unemployment rate fell from 33.5 percent to 28.1 percent over the same period.
Another key indicator is the employment-to-population ratio (EPOP) of prime age workers (25-54 years old). While prime-age EPOP increased in 2014, it has barely budged since January of 2015, even as the unemployment rate continued to fall. A flat EPOP would mean we’re only adding enough jobs to absorb new prime age population growth. Job growth has to be stronger, and sustained for a longer period, before we return to recovery level EPOPs. If job growth continues in 2016, prime-age EPOPs should start rising again, continuing their march toward recovery.
The one indicator that hasn’t really improved over the year—and one I don’t expect to change in the December report—is nominal wage growth. Nominal wage growth has been consistently below target over the last six years, and 2015 was no exception. The cumulative cost of slow wage growth is mounting. Nominal wages will be the key indicator to watch in 2016. As the labor market continues to improve, more people will find employment and the rolls of missing workers (those who have been sidelined in the weak economy) should shrink. Eventually, a healthier labor market should translate into faster wage growth. The question is when will workers start seeing the decent economic news reflected in their paychecks?
Unfortunately, last month the Federal Reserve began nudging up interest rates even in the absence of inflationary pressures, which could delay or slow further recovery. It could have a disastrous impact if the Fed hits the brakes too strongly in the coming year, with millions of Americans paying the price with fewer job opportunities and slower wage growth.
Check back tomorrow when we’ll reflect on the 2015 labor market, including jobs, unemployment, and wages. We’ll update our missing workers calculator, assess the jobs gap, and analyze nominal wage growth in the context of Federal Reserve policy.