The economy gained 148,000 jobs and the unemployment rate held at 4.1 percent in December, the Bureau of Labor Statistics estimated Friday in a report that suggested underlying resilience in the labor market even as it fell short of expectations.
Forecasters had expected around 190,000 new jobs.
December job creation was slightly slower than in the past two months, but those months' gains likely were inflated by the return of workers in states like Florida who had been temporarily sidelined by hurricane damage.
The underlying pace of job creation is more than healthy. Including revisions to October and November's numbers, job gains have averaged 204,000 over the past three months, roughly double what is needed to keep unemployment trending down.
Altogether, the economy gained 2.1 million payroll jobs in 2017, down just 100,000 from 2016 even though gains would be expected to taper down over the course of a long recovery.
Recent jobs numbers “have been showing a labor market that is strong, but there are some indicators such as wage growth that are not as stellar as we’d like to see them," said Cathy Barrera, chief economist for ZipRecruiter, an online jobs marketplace.
Wage growth failed to accelerate in December from its recent pace of around 2.5 percent annually.
The backdrop of resilient job growth was largely the motivation for the Federal Reserve’s decision in December to raise interest rates and continuing to tighten monetary policy in expectation that the economy will soon be in danger of overheating.
Meanwhile, the Trump administration is pursuing policies meant to bring more people into the workforce and drive down the unemployment rate even further.
The tax overhaul, the biggest such policy, is already in place as of this week. Fed officials expect that the lower tax rates will cause some businesses to invest and hire more, and some people to enter the workforce, although they were not sure just how big those effects would be.
Trump and congressional Republicans have also said they want to add work requirements to welfare programs in order to move people off the sidelines and into the labor force.
Republicans say that there are many people today who would want jobs but are not working because of the availability of government benefits and the weakness of commerce. Fed officials, for the most part, disagree, saying that the economy is near full employment.
With the unemployment rate the lowest since December of 2000, during the dotcom bubble, there are reasons to think unemployment can’t go much lower. But another question is whether labor force participation could be higher.
Labor force participation fell dramatically after the financial crisis. Partly, the decline was driven by the changing demographics of the country, especially the aging of the Baby Boom generation into retirement.
But it also reflected the fact that the lack of jobs was discouraging some people, causing them to quit the job hunt and fall out of the official calculation of the labor force even though they wanted jobs.
Republicans are betting that there are many such people on the margins of the labor force who could still come in.
The evidence for that proposition is that the labor force participation rate hasn’t budged in over four years, despite the aging of the population, suggesting that there is now pressure for some people to remain in the job search. At 62.7 percent, labor force participation was just one tenth of a percentage point lower than it was in October of 2013.
Another key piece of evidence is that job growth has remained strong and wage growth low even as the unemployment rate has dropped to historically low levels.
The evidence against the idea that there are many sidelined people who’d be interested in work is that, in some parts of the country and some industries at least, employers are increasingly having difficulty finding people to fill positions.
Barrera said that there may be a lag as recruiters and small business owners in places with very low unemployment realize that the hiring practices they've been using for the past decade may no longer be sufficient to entice workers, and begin to offer significantly better compensation to potential hires.
"I expect that over the course of 2018 that that last mechanism will kick in, as employers start to really realize that they do need to raise wages in order to compete for the talent,” she said.
Apart from slight job losses in the retail sector, employment gains were fairly widespread across industries, according to the report's survey of establishments.
The construction industry added 30,000 jobs in December, and health care created another 31,000. Manufacturing employment rose by 25,000, bringing the total number of job gains in 2017 to 196,000, after manufacturers lost jobs in 2016.