Lackluster wage growth in US jobs

Friday night saw the release of the latest employment stats from the US, the most important event on the economic calendar as it gives the Federal Reserve the clearest insight into the strength of the world’s largest economy, and hence sets its interest rate agenda and thus the direction of USD.

Stocks reacted positively to the headline result, with a little leeway given due to the weather conditions prevalent in December. A steady and very low 4.1% unemployment rate with ca. 148,000 jobs created was announced, under expectations, but also with a couple of revisions for October and November.

More detail via Forbes:

The sectors that reported job gains are a familiar bunch: healthcare once again led the pack, adding 31,000 jobs in December. According to the BLS, ambulatory health care services continued to “trend up” with 15,000 jobs added, and hospitals added 12,000 jobs. In 2017 as a whole, the healthcare sector added an even 300,000 jobs, down from 2016’s gain of 379,000.

Other industries that contributed to the 148,000 headline number were construction (which added 30,000 jobs), and manufacturing (which logged a gain of 25,000). On a full-year basis, the construction sector added 210,000 jobs in 2017, up from 155,000 in 2016, and manufacturing added 196,000 jobs during the year, a vast improvement over the 16,000 jobs lost in 2016.

What was actually important was the details within the report, notably average hourly earnings, which only rose by 9 cents to $26.63 in December or about 65 cents for calendar year 2017.

From Calculated Risk:

Wage growth had been trending up, although the acceleration in wage growth slowed in 2017.

That’s only 2.5%, not enough to excite core inflation:

So while the headline rate and the rate of job growth is keeping the Fed on line for its interest rate lifts, the timing may keep spacing out if wage growth doesn’t kick up soon. With the Republican’s tax cut plan unlikely to effect the vast majority of US wage earners, and with no other major fiscal agenda yet passed by Trump’s administration, hourly earnings and core inflation are unlikely to move higher.


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  1. Wages came in as expected. It is all part of the great adjustment; returning to our feudal roots.

  2. Brenton, are you still bearish on the AUD in 2018?
    Hopefully, you have seen the light.
    It will be the USD that continues to weaken.

    • Still very bearish, needs too many things to go it’s way imo. Only have a relatively small position on AUD/USD though, so wouldn’t try and persuade anyone to go either way on the trade (beyond my usual unwanted commentary lol).

      PS I’ve often wondered if one of you Andrew’s is actually Andrew Baker…??

      • I’m not Andrew Baker.
        bcnich has plenty to say as well.
        I hope his positions are small.
        There is no strength in the US economy. That is all you have to remember.
        Anyway, it is just my humble opinion, and if you are proven to be right, I will be the first to admit my mistake and I will never make another comment again.

  3. If U6 starts to get tight, it should also mean a real increase in the participation rate. That’s when wages will kick off.

    • Skeptical hippo, but even if it finally happens, it’s so late in the cycle that it’ll be a pointless development.

  4. Anyone interested in US employment ought look at the charts in this post and ought look at US demographics and the retirement of the baby boomers.

    New unemployment claims of the civilian workforce are at a record low in percentage terms.
    Continuing unemployment claims of the civilian workforce are almost at record lows.
    The growth rate of the civilian labour force is much lower than its historical rate as the baby boomers retire.
    All but one recession has occurred/ been brought on in the US at a higher trough in average weekly unemployment claims.
    The only fat left in US employment is in the participation rate.
    The main competition for US workers is not other US workers any more but is in automation (which has long been a source of competition for workers – just look at any video of a car plant) and offshoring.
    US economic growth is in the process of hitting a demographics driven wall, unless immigration is allowed to fill the gap.
    China is also about to hit the demographic wall in about 2020 when its population and workforce will commence falling because of the impact of the one child policy and the retirement/death/disability of post war boomers.
    Many countries in Europe and Japan have already hit this demographics driven wall.
    Query whether India and Indonesia and other less developed countries have the cultural capacity to replace the growth about to be lost in other countries.

    • Do you seriously believe that either population or consumption can grow without limit in any country? Leith has repeatedly presented a graph showing that those countries that have hit the “demographic wall” are actually doing the same or better in per capita terms than countries with growing populations. This is because they use automation and higher participation rates to compensate.

  5. – “Inflation” doesn’t drive interest rates.
    – My personal opinion is that the USD will go higher while at the same time rates will fall.