The December jobs report was mixed, definitely not recession stuff, but showing signs of a weakening labor market, which is bad news because the job market is where most people live. Sorry affordability cultists, but if you don’t get a good paycheck everything is unaffordable; put 20 percent more money in people’s pockets and things look much better. 

Anyhow, we got some bad news on the labor market in the December report, but also some good news in the sense that things look a little better than they did in November. I’m putting the bad news first because I think it was on net a negative report, and also because I’m that kind of guy.

• The November Jump in Involuntary Part-Time Was Real

The November report showed a jump in the number of people reporting that they were involuntarily working part-time of almost 900,000 to 5,487,000. This is a level of involuntary part-time that would be expected in a labor market with much more unemployment. It is the highest level since March of 2021 when the unemployment rate was 6.1 percent.

The data are highly erratic, so it was reasonable to think that the jump would be largely reversed in the December data. It wasn’t. The level of involuntary part-time fell by 146,000, but it was still almost 1 million higher than the year ago level.

I will add here that there is nothing wrong with people working part-time voluntarily. Under Biden, there was a Twitter mob of people yelling about a big increase in the number of people choosing to work part-time. Roughly 80 percent of part-time employment is by choice. 

People have lots of good reasons for preferring to work part-time, which is defined as less than 35 hours a week. They may have family responsibilities, they may be in school, or they may be semi-retired and not need full-time work. 

It’s a problem if people need full-time work and can’t get it. It’s not a problem if people decide to work fewer hours. 

• Continued Rise in Long-Term Unemployment

In a strong labor market, people who end up unemployed can expect to find another job fairly soon. In a weak labor market, spells of unemployment can end up being very long, which is obviously an enormous hardship. The share of the unemployed who were long-term (more than 26 weeks) rose to 26.0 percent in December. It has been on an upward path all year. The last time it was this high was in February of 2022, when many of the workers who lost their jobs in the pandemic still had not found new ones. The share of long-term unemployed had been as low as 17.8 percent in February of 2023. 

In the same vein, the share of unemployment due to people who voluntarily quit their jobs remained low at 11.1 percent. It averaged 13.2 percent in the strong 2018-19 labor market and peaked at over 15.0 in the summer of 2023.

• Higher Unemployment for Prime Age (25-54) Women

The unemployment rate for prime age workers stood at 3.7 percent in December, 0.6 pp above its average for 2019, before the pandemic. This turns out to be primarily a story of higher unemployment for prime age women. The unemployment rate for prime age men was 3.5 percent in December, 0.5 pp above its 2019 average. For prime age women it was 3.9 percent, 0.8 pp above its 2019 average.

Despite the higher unemployment rate, the labor force participation rate for prime age women stood at 78.1 percent, 2.1 pp above its 2019 average. For men, it was 89.5 percent, just 0.4 pp above its 2019 average. Clearly more women are feeling the need to work even in a more difficult labor market. 

The Good Story in the December Jobs Report

• Unemployment Drops to 4.4 Percent

The unemployment rate fell from the 4.6 percent rate reported in November to 4.4 percent in December. I’ve been looking at these data long enough to know that a drop of this size doesn’t mean much, especially since 0.1 pp of the drop was simply due to recalibrated seasonal adjustment factors. 

But even though the drop didn’t mean much, the real positive in the picture was that the unemployment rate didn’t rise. We had been on an upward path, and if the rate had inched even slightly higher in December, we would need to get our recession watch glasses out. As it turns out, we can feel pretty comfortable in saying there is no recession in sight, at least until the AI bubble bursts.

• Lower Unemployment Rate for Black Workers

The unemployment rate for Black workers fell from a previously reported 8.3 percent in November to 7.6 percent in December. (Here also the revised seasonal adjustment lowered the November rate by 0.1 pp.) This is still up 1.4 pp from the year ago rate, and 2.8 pp from the recovery low, but suggests the jump reported for November may have been an aberration. By comparison, the unemployment rate for white workers was 3.8 percent, just 0.2 pp above the year ago level.

• Year-Over-Year Wage Growth Accelerated Modestly

Year-over-year growth in the average hourly wage was 3.8 percent in December. This is up from the 3.5 percent rate reported for November, but still down from the 4.0 percent rate for most of 2023 and 2024. 

The number can be erratic, so the one-month change doesn’t mean much, but again it means we are not on a clear trend towards slower wage growth. With inflation close to 3.0 percent, we are still seeing a respectable pace of real wage growth

Areas of Uncertainty

I have not commented on the overall pace of job growth. It is clearly weak, but in a context where we are deporting large numbers of immigrant workers and have largely stopped the inflow, it’s not clear how many jobs the economy needs at this point to keep pace with the growth of the labor market.

The part of the story that is disturbing is that the growth over the last three months has been almost entirely in health care and restaurants. The goods sector, oil and gas, manufacturing, and construction are all losing jobs. That is pretty much 180 degrees at odds with the agenda of the Trump administration.

The other point is that hours growth has been very weak. That led to a great productivity number in the third quarter and could lead to another one for the fourth quarter. That is potentially a huge deal (AI anyone?), but I’m going to hold off on the celebration just now.