The U.S. labor market may be bottoming.
The Bureau of Labor Statistics, which is charged with calculating monthly jobs gains, released the December Nonfarm Payroll report (a.k.a. the U.S. jobs report) on Friday showing 156,000 new jobs were added in the month.
This headline number misses the big picture. As you can see in the Chart of the Day below, year-over-year jobs growth (which removes ambiguity around monthly fluctuations) peaked at 2.3% in February 2015 and has slowed ever since. Friday's December labor market check-up continued this trend, slowing to 1.51%. (Click here to read a brief primer on the misleading nature of the BLS's jobs report.)
Some Sectors of the economy Already Bottomed... Jobs Growth to Follow in 2017?
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The jobs report is a late cycle indicator. This means, at the end of the U.S. economic cycle, before a recession, jobs growth are among the last data points to go negative. Conversely, manufacturing economy barometers, like Industrial Production and ISM Manufacturing, are cyclical or leading indicators, meaning they are the first to peak and rollover before the U.S. tips into economic contraction.
Interestingly, these cyclical indicators appear to have bottomed sometime around August and September of last year. The U.S. economy accelerated in the third quarter of 2016 after slowing for five consecutive quarters. In other words, the probability that labor market growth will also bottom between January and May of 2017 is rising.
Where Do We Go From Here: A History of Jobs Cycles
As you can see in the chart below, jobs growth has been positive for 22 consecutive months in the current cycle. That's fairly long by historical standards. But the precedent for further expansion, into mid-2017, may be the 1990s. From 1991 to 1999, jobs growth was positive for 30 months straight.
In short, there is an argument to make for further job growth. And since the cyclical side of the economy has already bottomed out, the flow-through to jobs is pretty simple.