No change in the jobs picture

The December jobs number was much stronger than expected (292K vs. 200K), but one month in this volatile (and often revised) series is not enough to call a trend. As I see it, private sector jobs have been growing by a little more than 200K on average per month for the past several years, with no substantive change. If the December number is significant at all, it's because it undermines fears of a growth slowdown or recession. And given the market's weak expectations for growth, that's a positive. For now, the market appears to be obsessed with developments overseas, even if they are unlikely to have a significant impact on the U.S. economy one way or the other. How many are aware that U.S. exports to China account for less than 1% of our annual GDP? In the highly unlikely event that China cut its purchases of U.S. goods and services by half, that would amount to a $60-70 billion hit to GDP, and that's almost a rounding error.

The chart above illustrates my first point above. On average, the private sector has been creating a little over 200K jobs ever months for a long time. In this context, December's report was simply more of the same. We'd have to see at least 2 or 3 more strong numbers before getting excited.

The trend in private sector jobs growth is a little over 2% per year. Add that to the 0.6% increase in  labor productivity over the past 3 and 5 years and you get a GDP growth expectation of 2.7%. Nothing to get excited about, but it sure beats what's going on in most other developed countries. And consider this: the incremental growth of the U.S. economy this year will likely be almost as much as the entire annual output of Argentina.

One bright spot is that the growth of the civilian labor force (those who have a job or are looking for a job) has inched up to about 1% per year. But it's still the case that some 10 million people appear to have dropped out of the labor force (i.e., relative to past trends, there is a shortfall of about 10 million people in the labor force).

Another bright spot is the very slow growth of public sector jobs in the current business cycle expansion. The private sector is what powers the whole economy and pays the salaries of the public sector. The public sector has been shrinking relative to the rest of the economy for six years now, and that has freed up resources for the more productive private sector.