This morning’s report from the Bureau of Labor Statistics shows that the economy finished the year off strong. Payroll employment growth was 312,000 and year-over-year nominal wage growth was 3.2 percent. The unemployment rate came in at 3.9 percent, rising 0.2 percentage points since November. However, this rise happened for the “right” reasons as more workers entered the labor force—the labor force participation rate ticked up 0.2 percentage points.
Today’s report gives us a chance to look back on the whole of 2018—and look toward the year ahead. Average monthly job creation has held remarkably steady for the past eight years, but it did tick up slightly in the last year, from 182,000 in 2017 to 220,000 in 2018. This increase shows the importance of fiscal stimulus, as 2018 saw increased government spending as well as the tax bill which, while inefficient and short-lived, still provided some stimulus.
That so many jobs are still being created with the unemployment rate at near historic lows casts doubt on the conventional wisdom that the economy has reached or passed full employment. Wage growth, meanwhile, continues to increase, providing some evidence that we are on the right track. Picking up steam in the final quarter, wage growth averaged 2.8 percent for the full year 2018, compared with an average of 2.5 percent for 2017.
However, policymakers and economists should watch for potential headwinds in the year ahead, including the prospect of tighter Fed policy, slower government spending, and the fading boost from the tax cuts. The government shutdown, now in its second week, could pose a threat as well if it’s allowed to continue.
To keep things in perspective: Wage growth has never taken this long to bounce back to its pre-recession trend. But after years of unnecessary economic weakness caused by austerity at all levels of government, we are starting to see some positive signs. Let’s hope that the economy stays on the road to full employment and that nothing knocks us off course.