Despite downturns in the housing and auto sectors, businesses added 167,000 jobs to their payrolls in December. Ending the year on a high note, the monthly increase was about 50 percent more than expected. Judged by the historical record and by the current experience of most other industrialized countries, the December unemployment rate was an enviable 4.5 percent. Average nominal hourly wages for production workers and nonsupervisory employees (80 percent of the private-sector work force), increased a solid 0.5 percent last month. Even more importantly, through November, average inflation-adjusted hourly wages for these workers had increased an impressive 2.5 percent over the last 12 months.
For the year, nonfarm payrolls increased by 1.84 million jobs, or 153,000 per month. The unemployment rate averaged 4.6 percent in 2006, down from 6 percent in 2003, 5.5 percent in 2004 and 5.1 percent in 2005. By way of comparison, the latest unemployment rates in Europe are 5.5 percent (Britain), 8.7 percent (France) and 9.8 percent (Germany).
Worth noting is the fact that U.S. payrolls grew faster during the second half of 2006 (963,000 jobs) than they did during the first half (875,000 jobs). Considered a coincident economic indicator, nonfarmpayrolls measure how the economy is performing at that moment. The admittedly mild acceleration of employment growth for the July-December period could signal that the Federal Reserve is on track toward achieving its goal of a “soft landing.” According to this scenario, the economy would temporarily slow down from the 4.2 percent annualized growth rate that prevailed during the 12 quarters ending in March 2006. After catching its breadth (the “soft landing”), the economy would resume growing at its long-term potential, which most economists believe to be about 3 percent per year.
From an annualized growth rate of 5.6 percent in the first quarter of 2006, the pace of U.S. economic growth slowed to 2.6 percent and 2 percent during the second and third quarters. Notwithstanding stellar stock-market gains (a leading economic indicator), which have been undergirded by solid growth in corporate profits, the dreaded “R-word” had begun to make its appearance in recent months. Fortunately, the increase in service jobs continues to more than compensate for declines in manufacturing and construction employment.