Total nonfarm employment in the US grew by 200,000 jobs last month, while the unemployment rate held steady at a historically low 4.1 percent, according to January’s employment numbers from the Bureau of Labor Statistics. The highlight of last month’s jobs data, however, was the increase in average hourly earnings, which rose by nine cents to $26.74, following an 11-cent gain in December. Over the past year, average earnings increased by 75 cents or 2.9 percent. That’s the largest year-on-year gain since June 2009, Reuters reports, though the average workweek fell slightly in January to 34.3 hours, canceling out some of these wage gains.
Reuters adds that the strong jobs data increase the likelihood that the Federal Reserve will raise its benchmark interest rate several times this year, perhaps more than the three hikes it was already planning:
“This report supports the Fed’s contention that the jobs market is nearing full capacity and wage and inflation pressure has begun to make its way into the data,” said Marvin Loh, senior global market strategist at BNY Mellon in Boston. “With almost full odds priced in for a March rate hike, investors have moved towards the second, third, or even possible fourth rate hike this year.”
A separate set of Labor Department figures released earlier in the week found that total US employee compensation costs increased by 2.8 percent across 2017, Bloomberg reported, with several industries, including transportation and service occupations. showing increases of over 3 percent—a sign of a competitive labor market.
Last month’s wage growth by and large does not reflect the raises some major US employers announced in the weeks after Congress passed a massive cut in the corporate tax rate in December, as most of these raises have not yet gone into effect. Nor does the BLS report reflect the bonuses these companies handed out from their tax savings, the Wall Street Journal points out, as irregular bonuses are excluded from the earnings data.
December’s jobs report showed that the US economy added a total of 2.1 million jobs in 2017 as unemployment fell and over 300,000 long-term unemployed Americans returned to work. A tight labor market should naturally cause wages to rise, and economists and the Fed had been puzzled as to why wages were not growing faster over the past two years amid consistently low unemployment figures.
January’s numbers show that the tide is finally turning in favor of American workers, while surveys suggest that business leaders are optimistic about the trajectory of the economy in 2018 and intend to increase compensation further. The trend of increasing pay differentiation, however, means that most of these gains will likely go to top performers, while the average employee may get a smaller raise.