December Payrolls: U.S. Job Market Set for Weakest Annual Gains Since 2011

U.S. employers likely created more than 2 million jobs last year, the weakest since 2011, as wage growth stalls despite the lowest jobless rate in fifty years.
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The U.S. job market is likely to cap its weakest year of growth in nearly a decade with a solid, but by no means spectacular, December payroll report Friday that will highlight modest wage gains despite the lowest unemployment rate in fifty years.

U.S. employers likely added a net new 166,000 new jobs last month, according to the consensus forecast for the Commerce Department's December non-farm payroll report. That's down sharply from November's 266,000 tally -- which was flattered by the return of 46,000 striking workers at General Motors  (GM) - Get Report -- but largely in-line with recent long-term average. 

Official figures will be released at 8:30 am Eastern time.

The 2019 job gains total, however, is likely to rise just over the 2 million mark, down from 2.68 million in 2018 and the weakest pace of job creation since 2011. That might explain why wage growth, which sits at a tepid 3.1%, has eased notably since peaking at 3.4% in February, even as consumer spending continues to impress and the broader economy continues to enjoy a GDP run-rate of around 2%.

"The upturn in wage growth has taken much longer to emerge than in previous cycles in part because productivity growth has been much slower this time around, averaging 1.2% since the end of the recession, compared to 2.6% across the previous cycle as a whole," said Ian Shepherdson of Pantheon Economics. "Slower productivity growth constrains the real component of nominal wage growth. At the same time, people have been very reluctant to push for bigger pay increases, probably as a consequence of the trauma inflicted by the crash of 2008."

Modest gains in average hourly wages, even within a labor market where headline unemployment sits a at 50-year low of 3.5%, are likely to keep the Federal Reserve comfortable with its 'wait-and-see' stance on interest rates --- following three base rate cuts in 2019 -- even if growth were to rebound on the back of a comprehensive trade agreement between the U.S. and China.

CME Group futures prices suggest little chance of an interest rate hike from the Fed this year, with the balance of bets on rates staying in the 1.5% to 1.75% range for the whole of 2020. 

"Jobs continue to be created in decent numbers, but there is little wage inflation threat despite apparently tight labor markets," said ING's chief international economist James Knightley. "Consequently, with the Federal Reserve seemingly content with its current monetary policy stance the prospect of any near-term interest rate moves appears remote."