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Economy in a Nutshell: Manufacturing in Recession. Services Booming.

The monthly jobs report also shows it’s still hard to get a meaningful raise despite low unemployment.

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Holiday shoppers at the Pentagon City Mall in Arlington, Va., in late November. The retail sector added 41,000 jobs in December, dwarfing manufacturing-sector losses.Credit...Loren Elliott/Reuters

Sometimes, the monthly employment numbers seem to come out of left field, and don’t really align with all the other evidence about how the economy is evolving. December is not one of those months.

To the contrary, pretty much everything in the latest numbers released Friday fits the broader story. It’s a mostly benign picture, though not without some challenges.

Job creation was steady, with employers adding 145,000 jobs in December. It’s a far cry from the revised 256,000 jobs added in November. But the lower number is more consistent with recent growth in G.D.P. and an economy that appears closer to full employment than it has in two decades.

Employers have added an average of 184,000 jobs a month over the last three months. If sustained over 2020, the pace would be about the same as in 2016 and 2017 — not an acceleration from recent trends but also perfectly fine.

There is a more complex story in the composition of those jobs, though.

The manufacturing recession underway shows up in the employment numbers: The nation’s factories shed 12,000 jobs in December, with the steepest loss in the making of fabricated metal products. A further 8,000 jobs were lost in the mining sector, reflecting a slump in spending on energy exploration. Transportation and warehousing employment fell by 10,400, another potential knock-on effect of the manufacturing slump.

This story is not too complicated: The sectors that bear the brunt of the global economic slowdown and the trade wars are cutting jobs, or at least they were in December.

Last week’s report from the Institute of Supply Management adds some color. Its manufacturing index fell sharply in December, the fastest rate of contraction since June 2009, when the economy was struggling to emerge from a deep recession.

A respondent in the report said: “Anticipated large export orders did not materialize” in the fabricated metal industry. “As a result, U.S. production has decreased.”

The good news, such as it is, is that manufacturing is a relatively small slice of the overall economy, and things can churn along decently for most American workers even with the travails in export-centric factories.

Even the bedraggled retail sector added 41,000 jobs in December, dwarfing the manufacturing-sector losses. The leisure and hospitality sector contributed 40,000, and the education and health services sector 36,000.

For all the focus on the manufacturing industry in political discussions and the popular imagination, the United States in 2020 is very much a service economy, and becoming more so. Only 8.4 percent of all jobs were in manufacturing in December, continuing a long downward trend since World War II.

The employment numbers are also consistent with the other Institute of Supply Management survey, focused on service industries. It remained comfortably in growth territory in December even as its manufacturing counterpart took a dive.

All of this raises the obvious question of where it leaves American workers in an election year.

The United States has been at or below a 4 percent unemployment rate since March 2018, nearly two full years. Jobs are plentiful. If you are a manufacturing worker losing your job, you probably have more options than when the same thing happens in a recession.

But the tight labor market is, surprisingly, not generating the kinds of pay rises that have typically taken place in this environment, especially in times of such low joblessness.

Average hourly earnings rose only 2.9 percent in 2019. And while the figures for nonsupervisory workers have tracked higher than for all employees in recent months — suggesting bigger raises for rank-and-file workers than for their bosses — the two numbers converged in December. Over the last year, nonmanagers saw a rise in average hourly earnings of only 3 percent.

Perhaps the tight labor market is showing up in ways that don’t appear in economic data, such as in more flexible work arrangements, or a greater willingness of employers to hire underqualified workers and train them. Because inflation has remained low, even small pay raises can increase living standards. But however they’re doing it, employers have managed to keep a lid on the rate at which compensation is rising.

Put it all together, and the United States economy looks like this: Manufacturing and some adjacent industries are in contraction. The service sector, driven by consumers, is booming. And while it’s relatively easy to find a job — the unemployment rate (3.5 percent) hasn’t been this low since 1969 — it’s a lot harder to get a meaningful raise.

At the start of 2020, the United States economy is what we thought it was.

Neil Irwin is a senior economics correspondent for The Upshot. He is the author of “How to Win in a Winner-Take-All-World,” a guide to navigating a career in the modern economy. More about Neil Irwin

A version of this article appears in print on  , Section B, Page 6 of the New York edition with the headline: A Picture of Shrinking Factories and a Sprawling Service Industry. Order Reprints | Today’s Paper | Subscribe

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