With today’s jobs report closing out 2015 we can now look at last year in the context of the recovery as a whole. Payroll job growth in December was stronger at 292,000 jobs. With the upwards revisions for the previous months as well, that raises the average for 2015 to 221,000 a month which, while solid, was still below the average of 2014. We would expect job growth to slow as the economy approaches full employment; however, it is obvious from the data that the economy is not there yet. While unemployment has fallen, nominal wage growth, the prime-age employment-to-population (EPOP) ratio, and the labor force participation rate are all lagging. Prime-age EPOP is still under than halfway to its previous peak, a clear indication that many of the people we would expect to be working in a stronger economy are still on the sidelines.
Wages in December grew 2.5 percent year-over-year, bringing average nominal wage growth in 2015 to 2.2 percent. While the Fed has already nudged up short term interest rates, these weak wage data are an indication that they should hold off on further hikes. We need to see strong and sustained wage growth, above 3.5 percent, before it’s safe to say we are at full employment and the Fed could act to slow the economy. In the absence of substantive policy changes to restore workers’ bargaining power, a tight labor market is the one way left to improve living standards for the vast majority of workers and their families. In a full employment economy, there are fewer people lined up for every job and employers have to offer higher wages to attract and retain workers. This new year the Fed should resolve to keep rates low until the economy genuinely works for working people.