According to the ADP National Employment Report, the U.S. private sector added 257,000 jobs in December. The report's analysis of job growth by company size revealed that large businesses with 500 or more employees added 97,000 jobs in December 2015, the second largest growth that sector has seen since ADP started tracking employment numbers in 2005.
The recent increase in large business employment growth is unique, given the presence of a variety of negative economic factors, such as the strong dollar and low oil prices. Historically, those factors have had a negative impact on large business financials.
Job Growth Is Unstoppable
Ahu Yildirmaz, VP and head of the ADP Research Institute, reports that "the average monthly employment growth was just under 200,000 for the year." Overall, 2015 was a year of growth, but the largest job gains took place in December. While Yildirmaz notes that there was some "weakness in the energy and manufacturing sectors," the ADP National Employment Report reveals that there were consistently strong gains in professional services, finance, trade, transportation and utilities. According to Mark Zandi, chief economist of Moody's Analytics, if this growth continues, the U.S. job market will be uniquely positioned to reach "full employment by mid-year." If and when this occurs, it will be the first time the economy has reached this level of employment in nearly a decade.
The Impact of Low Oil Prices
Typically, job growth in the energy and finance sectors can slow significantly when oil prices fall. Lower profit potential can make energy companies less likely to initiate new projects that require staffing, which can decrease demand for the financial capital required to support energy projects. This can in turn slow the process of hiring for financial roles, according to Investopedia.
In December, the 13,000 jobs added to the financial activities sector aligned with monthly averages for 2015. Despite minimal growth and job losses in the manufacturing and energy sectors, however, the recent strength of job growth indicates that the economy may not be responding as expected to the drops in oil prices or exchange rates.
The fact that oil prices have been low for months has had a measurable impact on certain sectors of the job market, but not on the overall growth trend for large business employment. Energy, which traditionally includes many large organizations, was the only industry to lose jobs in the last month of the year.
In fact, according to Investopedia, oil prices are directly related to the cost of "transporting goods and people." That means lower oil prices can have a positive impact on manufacturing and production. In addition, consumer spending, bolstered by cheaper gas and home heating oil, fuels growth in both the service and professional activity sectors at both large firms and smaller organizations.
Is the Market on the Cusp of a Delayed Recession?
While the dollar's strong position can negatively impact the manufacturing and trade sectors, both appear relatively impervious to economic conditions. According to The Wall Street Journal, crude oil prices have recently plummeted to the lowest level in more than a decade. And CNNMoney writes that a variety of global currencies are now down at least 20 percent against last year's dollar. Despite these factors, it seems unlikely that the job market is on the cusp of a recession.
For U.S. organizations that participate in imports and exports, the recent strength of the dollar can be positive or negative. Brands that export may lose profit in countries whose currency is weak against the dollar. In contrast, U.S.-based companies that manufacture products outside the states have higher profit. Ultimately, the lack of fluctuation due to currency, according to The Washington Post, is because "the United States already imports far more than it exports."
As Yildirmaz points out, the U.S. job market added an average of close to 240,000 jobs each month in 2014, which has fueled the current trend of employment gains. Strong growth in the service sector could be a natural byproduct of increased discretionary income. Lynn Franco, director of economic indicators at The Conference Board, reports that as of December 2015, "consumers' assessment of the current state of the economy remains positive, particularly their assessment of the job market." Declining oil prices can be tied to improved consumer confidence and spending in the retail and services sectors.
Finally, the diversity of the U.S. economy means that large business employment growth is less susceptible to fluctuations in oil prices. According to the Council on Foreign Relations, "oil and gas extraction" accounted for 4.3 percent of the U.S. gross domestic product (GDP) in 1981. But after the shale boom of 2011, it accounted for just 1.6 percent. Unlike other countries whose GDP is closely tied to oil, the U.S. job market's elasticity in response to oil prices is relatively minor.
What's Next For the U.S. Job Market?
According to Zandi, the climate of "strong job growth shows no signs of abating," regardless of the fluctuations in the energy and manufacturing sectors. Despite analyst predictions that oil prices will remain low and the dollar will maintain its strong position, economic growth driven by the spending of confident consumers may continue to drive the market in a positive direction.
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