Not a glorious end to 2017 on the US labour market, but in 2018 unemployment will continue to fall, keeping consumer spending buoyant

The US labour market closed last year with “only” 148,000 new jobs created. However, December had been preceded by two very strong months, meaning that in the final instance Q4/2017 saw a total of a little more than half a million new jobs created. The service sector maintained the pace of the prior quarters, with job growth at 0.4 percent, and thus on its own accounted for approx. three quarters of the newly created jobs. What is, however, striking, is above all that in Q4 manufacturing doubled the speed at which it was hiring, with the job creation rate thus rising to no less than 0.6 percent.

The good economic climate overall also suggests that coming quarters will see robust momentum on the job creation front – at a pace only slightly behind that seen in 2017. In this way, the downward trend in the unemployment rate should continue, having in Q4 reached the lowest figure in 17 years. As early as the coming spring the rate could even fall below the 4-percent mark. This will presumably cause increasing pressure on the wages side, although the dynamism here will probably remain well behind that seen in past phases with labour market upturns. The Fed governors will likely keep a very close eye on the trend after the change at the helm, meaning under the new Fed Chair Jerome Powell.

Wage momentum will be braked by further advances in automation, which threaten not only jobs in the manufacturing sectors. The upward pressure on wages will also be limited by the increased importance attached by employees to a sound job and security since the last crisis as well as the fact that part-time pay lags well behind. In the final instance, in December the historically low unemployment rate of 4.1 percent only went hand in hand with a wage increase of 2.5 percent on the prior-year month.

In coming months, not only the service sector looks set to function as usual as the engine delivering an ongoing sound increase in jobs, as industry and the construction sector will presumably, and similarly to last year, also weigh in with their own contributions. Alongside favourable stimuli from the tax reform, which will probably boost the number of jobs specifically among small US companies, the overall good order books in manufacturing point in this direction. The ISM’s monthly survey of countless industrial corporations has for some months now been at a very high level and paints a truly rosy picture of sentiment. The latest visible increase in December was, for example, driven by a superb assessment of the order situation.

Below the line, not least owing to the ongoing buoyant labour market we expect that 2018 will see an enduring rise in private consumer spending, which is after all the single most important pillar of growth for the US economy. A surprisingly clear drop in consumers’ expectations for the coming six months shows that a further rise in consumer spending is not an automatic occurrence when labour market conditions are good. Thus, the expectation component in the Conference Board’s consumer sentiment index for December has fallen to the lowest figure since President Trump took office. Should this be driven by enduring consumer scepticism as regards a tax reform that was “swiftly cobbled together”, then the boost to domestic demand could turn out to be less than the one or other Republican Congressman may have hoped. In our estimation, this year the US economy will achieve growth of 2.5 percent as compared to 2.3 percent the prior year.

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