United States wage growth hits nine-year high

Marco Green
November 3, 2018

FBN's Blake Burman breaks down the October jobs report.

Though economists predict that hiring will eventually slow as the pool of unemployed Americans dwindles, there's no sign of that happening yet.

The economy added 250,000 jobs in October, the Bureau of Labor Statistics reported on November 2, with Hispanic unemployment dropping to 4.4 percent-a new record for data reaching back to 1973. "If that is starting to crack, we might see millions of more people joining the labor force".

Nonfarm payrolls increased by 250,000 jobs last month as employment in the leisure and hospitality sector bounced back after being held down by Hurricane Florence, which drenched North and SC in mid-September.

"The report shows a booming USA economy with a sufficient whiff of wage inflation to keep the Fed on track to raise rates in December and at least twice next year", said David Kelly, chief global strategist at JPMorgan Funds in NY.

Employment gains have averaged 208,000 jobs per month this year, double the roughly 100,000 needed to keep up with growth in the working-age population. It is regarded as the most important indicator of the health of the U.S. economy, the world's largest, and it has a strong influence on the Federal Reserve's interest rate decisions.

Hurricane Michael, which slammed into the Florida Panhandle and southern Georgia last month, had no discernible effect on the jobs data, the government said. Healthcare and social services employers added 46,700 jobs, up from a gain of 34,900 in September.

The Fed is not expected to raise rates at its policy meeting next week, but economists believe October's strong labour market data could see the US central bank signal an increase in December.

Hiring spanned all sectors.

Retail payrolls probably remained weak, weighed down by layoffs related to Steinhoff's Mattress Firm bankruptcy as well as some store closures by Sears Holdings Corp.

Today's figures show that the United States transportation equipment sector added 21,000 workers, within which the key auto industry accounted for 6,800 positions. A recent Pew Report showed workers' real wages-how much they can buy with their money-are actually lower than it was in the 1970s. Combined, the two quarters produced the strongest six-month stretch of growth in four years.

The stimulus "is driving strong growth, but we have a almost trillion dollar deficit and at some point we have to pay for that", said Stevenson, who is now an associate professor at the University of MI. But slower sales have started to limit home price increases, which had been running at more than twice the pace of wage gains.

Although pay increases can help boost spending and propel the economy's growth, they can also lead companies to raise prices to cover their higher labor costs.

So far, though, inflation remains in check. A measure of wage and salaries rose 3.1 percent in the third quarter from a year earlier, the best such showing in a decade. The personal consumption expenditures price index excluding the volatile food and energy components has increased 2.0 percent for five straight months.

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