The U.S. labor market ended a year of solid growth on a disappointing note last month, but economists said tax cuts are set to breathe some new life into the gradually decelerating jobs recovery.
December’s gain of 148,000 net new jobs, reported Friday by the Labor Department, was well below analyst estimates and down sharply from an upwardly revised 252,000 net new jobs added in the previous month.
But beyond the top-line number, analysts said there were positives in the report — and a boost coming this year from the Republican tax bill enacted last month.
December’s job creation was enough to push 2017’s total over 2 million for the seventh straight year, although the figure was down slightly from 2016. The only other time the U.S. added more than 2 million jobs annually for such a long stretch was during the internet-fueled boom of the 1990s.
Despite the December slowdown, job creation averaged 204,000 over the final three months of 2017. That was the best quarterly pace since mid 2016.
The unemployment rate remained at 4.1% for the third straight month. That is the lowest since the end of 2000.
The unemployment rate for blacks, at 6.8%, was higher than for the overall population, but down more than a percentage point over the year to the lowest level since the Labor Department began tracking it in 1972. The rate has dropped dramatically from a high of 16.8% in early 2010.
The unemployment rate for Latinos matched a post-1972 low of 4.8% in November, but ticked up to 4.9% last month. It had been 13% in 2009.
The relative decrease in the rates for blacks and Latinos is similar to the drop in the overall unemployment rate, which has tumbled from a recent high of 10% in late 2009.
The overall unemployment rate held steady in December because the workforce grew only modestly by 64,000 . The percentage of working-age Americans in the labor force remained at 62.7% last month, near a four-decade low.
And wages showed a healthy gain, with average hourly earnings jumping 9 cents to $26.63 in December after just a three-cent rise the previous month. Wages were up 2.5% in 2017, about the same annual gains as the previous two years.
“This is a solid jobs report consistent with what we saw in 2017,” said Gus Faucher, chief economist at PNC Financial Services Group.
Gary Cohn, the top economic advisor to President Trump, said Friday that he wanted monthly job growth of more than 200,000. The corporate and individual tax cuts that took effect on Monday will help push hiring back up to that level this year and spur higher worker pay, he told Bloomberg TV.
“We see the economy continuously growing and continuously adding jobs, and remember tax reform is now five days old and the input that that’s going to have into the economy is … just barely starting to have an effect,” Cohn said. “We are committed to real wage growth and we do believe you’ll see it over the course of the next year or two.”
Job growth has been trending down since 2014, indicating the nation is nearing full employment as the recovery from the Great Recession is more than eight years old.
Overall in 2017, the economy added 2.06 million net new jobs. That was down from 2.24 million in 2016 and well off the nearly 3 million jobs the U.S. economy added in 2014.
A continued decline in the retail sector, which shed 20,000 jobs in December and 67,000 for the year, was a key factor in the slowing growth last month. Brick-and-mortar retailers are struggling in the face of increased online shopping, economists said.
Retail losses were offset by solid gains in healthcare, construction and manufacturing last month, the Labor Department said.
Still, the labor market right now is “about as good as it gets,” said Mark Zandi, chief economist at Moody’s Analytics.
“It’s not picture perfect, but it’s a pretty picture,” he said. “I think that business’ No. 1 problem is already finding qualified workers and that problem is going to intensify as the year progresses.”
The 2017 job growth was largely an extension of the economic policies enacted under former President Obama, Zandi said.
It takes months for a new president to have an effect on the economy. Aside from some regulatory reductions, Trump did not put any major economic policies in place until the tax cut legislation at the end of last year, said Zandi, who was an advisor to Sen. John McCain’s 2008 presidential campaign.
“2017 was very much an Obama economy. 2018 will be Trump’s economy,” Zandi said. “Going forward it’s his. He owns it.”
Zandi predicted that the economy would add 2 million jobs again in 2018. A significant chunk of those — about 325,000 — will be fueled by the tax cuts, he said..
And those corporate and individual cuts will help push annual wage growth above 3% by the end of this year, Zandi said.
Faucher also said that tax cuts would help the jobs market, but predicted growth declining this year to about 1.8 million jobs. Wages will increase in 2018 but less from tax cuts than from the increased competition for a shrinking pool of available workers, he said.
Wage growth won’t happen automatically simply because companies have more money from lower tax rates, Faucher said. Businesses boost pay when they’re forced to in order to keep workers or lure new hires.
But increasing wages won’t help employers find people with the skills needed for increasingly complex jobs, said Steven Banks, chief economist at the Los Angeles County Economic Development Corp.
“There is a mismatch in the labor market between the kind of skills that workers have and the kind of skills that employers in main industry clusters are looking for,” he said. Those sectors include aerospace and other manufacturers.