Soft Wages and Underemployment put a Cloud Job Growth

The U.S. concluded its best year of job growth in 15 years as the unemployment rate fell to a postrecession low last month, signs of strength that mask continued challenges of stagnant wages and a stubbornly high number of Americans still on the sidelines.

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Employment across the economy climbed by a seasonally adjusted 252,000 in December, the Labor Department said, closing 2014 with strong hiring momentum that appears set to continue into this year. Revisions showed employers added 50,000 more jobs in October and November than previously estimated.

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Yet a reversal in wages—after hints of a pickup in the prior month—highlighted the labor market’s struggle to gain sufficient vigor to sustain stronger economic growth. Economists typically expect a rapidly falling unemployment rate—to 5.6% in December from 6.7% a year earlier—to deplete the pool of existing workers and spur competition among employers, reflected in higher wages.

But a robust year of job growth, inching closer to most measures of full employment, has yet to deliver that result. Hourly earnings in December rose 1.7% over the past year, barely ahead of inflation. The divide could protect firms’ profits while restraining the ability of U.S. households to elevate their living standards, underscoring the overall sense of malaise among Americans seen in many recent polls.

“The simple fact is we cannot consider an employment report a success, no matter how healthy the headline may be, if wage data does not begin to accelerate,” said Dan Greenhaus, chief strategist at the brokerage BTIG.

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