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US Jobs Report from The United States Staffing Association

First Friday of every month, when for a brief moment the interests of Wall Street, Washington Post, Business Insider and all major media publications are aligned for a simple reason: the Bureau Of Labor Statistics releases its job report.

The monthly event attracts the attention of market analysts, economic analysts and human resource personals across the world. In the first report of the year, The Bureau of Labor Statistics has given a strong signal about the positive health of the economy despite a troubling international backdrop.

The Bureau of Labor Statistics (BLS) has said in its latest report that nonfarm payrolls increased a seasonally adjusted 292,000 in the month of December and the unemployment rate is holding steady at 5 percent level. This has disappointed observers as ahead of the report economists had estimated decline in the unemployment rate to 4.9%.

In the whole year of 2015, the nation added 2.65 million jobs. There is a back-to-back gain for two consecutive years which is the best employment phase since 1990s.

“I think this really is illustrative of the fact that economic momentum in the United States is still awfully strong,” said Carl Tannenbaum, chief economist at Northern Trust. “In spite of the craziness we’ve seen from Asian markets this week, the fundamentals here at home are still solid.”  Here are the three main outcomes of the report.

The unemployment rate is hovering at 5 percent, similar to the level of last month, but it’s still in the comfort zone as it has fallen from the level of 10 percent in October 2009.

Wages remained flat in the December 2015 month compared to November. However, it increased by 2.5 percent against the prior year.

The manufacturing data is disappointing and it’s pretty obvious that the sector is in a downward spiral. Though, it’s slightly better than oil and mining, which has actually registered a negative growth due to falling crude prices globally. The sector is continually contracting since June 2015 and the southward journey is continued.

This clearly outlines the challenges currently faced by the sector which is stronger dollar, economic slowdown in China and problems in emerging nations.

The big picture which is emerging from the report is that despite strong job growth, the employment rate remained flat which implies stronger potential growth.

Emerging trends
The most obvious trend from the BLS job report is that out of total jobs created, 47 percent jobs were created in just three sectors—professional services, food and healthcare. Another fact is that most of the job creation has been confined to low paying strata in these sectors. It has suppressed the overall wage levels.

Another reason for the suppressed wage level is a slow or flattish growth of high paying sectors such as financial services. The sector has witnessed a little growth as growth in the mortgage sector has remained limited. Another high-paying sector oil and gas has reflected a decline in jobs by 7.5 percent.

The decline in job growth within the high-paying sectors has made the situation difficult for Federal Reserve who is planning to raise rates four times this year.

What does this mean for U.S economy?
The robust employment data has helped allay fears about the health of the economy. Economists and financial analysts are optimistic since the recent weaknesses are largely confined in manufacturing and export-oriented sectors that have been largely hit by strong dollar and problems in the global economy.

David Donabedian, chief investment officer of Atlantic Trust Private Wealth Management, says, “It gives us a short-term shot in the arm and pushes back the idea that we are headed for a global recession or that weakness in China will sink our economy.”

Impact on Fed action
The latest data must have confused Fed about raising interest rates further in the year. Though, Fed is mainly concerned about inflation data, but it will surely keep an eye on the wage data.

Paul Ashworth, chief U.S. economist at Capital Markets in New York opines, “With oil prices close to $30 a barrel now, this latest labor market improvement doesn’t necessarily guarantee a March rate hike.”

It’s to be noted that U.S central bank raised overnight rates by a quarter percentage point nearly after a decade.

With the Fed focused on inflation, wage growth is under scrutiny. Economists said December’s decline in earnings could mainly due to a calendar-related quirk.

Labor force participation rate is a concern
The labor force participation rate is an important data that Fed watches. It’s the measure of how many people in the labor force are actually working. It was at 62.6% in December which is greater than November but less than the last year December data. The low participation rate is a matter of concern for policymakers.

Final words
Though, the latest U.S job report may not have hogged as much limelight as it should have been in the wake of crumbling Chinese economy, but it will certainly gain prominence when Fed will further consider its monetary tightening policy. The underlying tone of the report is certainly positive.

“I think this really is illustrative of the fact that economic momentum in the United States is still awfully strong,” said Carl Tannenbaum, chief economist at Northern Trust. This summarizes the overall economic sentiment.
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