When the Bureau of Labor and Statistics released the December employment report last Friday, the main focus of most people was on the fact that the number of jobs added in December was below the consensus estimate. Nonfarm payrolls increased by 145,000 and the estimate was for 266,000 jobs to be added.
The initial reaction from the market was a slightly cautious move and stocks dipped throughout the day on Friday. Of course, that was coming off the big gains on Wednesday and Thursday and ahead of the start of earnings season. Investors may have just been taking some gains off the table rather than reacting to the employment report.
Even though the nonfarm payroll number was the headline, there were two other items that came from the report that got my attention. With the 145,000 jobs added in December, the total number of jobs added in 2019 came to 2.1 million. That sounds like an impressive total, but that was the lowest yearly total since 2011.
The second item that I took note of was that the percentage of women in the workforce jumped to 50.04% and it is the first time since April 2010 that the majority of workers were women.
What does each of these items tell us about the economy? Regarding the 2.1 million job growth total being the lowest since 2011, I don’t think it is a bad sign for the economy. We have been in an economic expansion for over 10 years now and it is one of the longest expansions in history. The labor participation rate is up and yet the unemployment rate has remained at 3.5% and that is near a 50-year low.
At some point, the number of jobs added has to level off just based on the population and the number of workers available to fill roles. Whether we are at that point or not remains to be seen, but it is difficult to add 250K, 300K jobs on a monthly basis when the economy has been growing for as long as it has. You tend to get bigger numbers as you come out of a recessionary period.
As for the fact that women have moved back into the majority of the workforce, I think that is a reflection of where the jobs are being added. Industries such as education and healthcare have historically been heavily filled with females and these are two areas that have seen a great many jobs added in the past year.
Even with women representing just over half of the workforce, there is still a pretty significant gap in the labor participation rates of men and women. The December employment report shows that the rate for men is at 69.2% while for women the participation rate is only 57.7%.
There is an interesting side story to women participating in the workforce. In 2019, Harvard Business Review released some studies regarding how companies perform when there is greater representation from females on the board. While I highly recommend reading the article, the following statement is the conclusion of the article:
“Our study has two important policy implications. First, it suggests that female board representation matters more in certain industries, because some industries have more overconfident CEOs. Second, our findings suggest female board representation can be especially beneficial in helping firms weather crises. Overall, our research supports the view that having women on boards improves strategic decision making and benefits firms.”
The basic summary was that the presence of female directors on the board tended to temper the overconfidence of male CEOs and this lead to fewer aggressive decisions. In the end, companies with female representation on the board did better than those without females on the board.
If this is the case, let’s hope the labor participation rate for women continues to grow as that could eventually lead to more female representation on boards and in the end that would help build better companies.