The February employment figures from the Bureau of Labor Statistics, released on Friday, depict a strong labor market, with the US economy adding 313,000 jobs: the largest monthly increase since July 2016 and extending the longest recorded labor market expansion in US history into its 89th month. Job growth figures were also revised upward for December and January by a total of 54,000. The unemployment rate held steady for the fifth month straight at 4.1 percent, the lowest rate since December 2000.
Economists had expected growth of around 200,000 jobs. Some observers attribute the spike in hiring to the massive corporate tax cut passed by Congress in December, but this is not a consensus view, the Washington Post reports:
“This is a result of fiscal stimulus — in other words: a $1.3 billion tax cut,” [Glassdoor chief economist Andrew Chamberlain] said. “Businesses are making decisions on a forward-looking basis. Even if the dollars aren’t in the pockets of companies yet, they’re making plans.”
Cathy Barrera, head economist at ZipRecuiter, an employment site, questioned that interpretation, asserting it’s still too early to see an impact from the tax measure. “Really for businesses, what matters is demand for their products,” she said. “If demand for products hasn’t gone up, there’s not more work for these companies to be doing.”
The only piece of not-so-great news in Friday’s jobs report was that February did not deliver the acceleration in wage growth that many economists were hoping for. Average hourly earnings for private nonfarm employees rose by 4 cents to $26.75, for a year-over-year figure of 2.6 percent, lower than the 2.9 percent figure reported for January (revised downward in this month’s report to 2.8 percent).
The combination of large job growth and low wage growth was reassuring news for Wall Street, the New York Times adds, as it points to continued economic expansion but eases fears of runaway inflation:
The tax reform bill passed by the US Congress in December, which drastically lowered the corporate tax rate from 35 to 21 percent, has prompted numerous large employers to announce raises, bonuses, or upgrades to their benefits packages as a means of passing on some of their tax savings to their employees. On Wednesday, the restaurant chain Chipotle announced a round of one-time cash bonuses and stock grants, as well as increased parental leave coverage for many employees. On Thursday, CVS said that it would boost hourly employees’ pay from $9 to $11 per hour, among other pay rate increases, and now provide up to four weeks of paid parental leave for full-time employees. Walmart, Starbucks, Disney, Wells Fargo, and other large companies have made similar moves.
What remains unclear, however, is whether these rewards (most of which consist of one-time bonuses rather than permanent wage increases) are sustainable and whether the benefits of the tax cut will redound to the majority of Americans who don’t work for large corporations. Small business owners are reluctant to make similar moves, much as they would like to, until they have a better sense of how much money they will actually save from the tax reform. As the Associated Press’ Joyce Rosenberg pointed out this week, smaller companies have less clarity on that issue than large corporations do, and questions remain as to how new deduction rules will pan out for small business owners. In addition, small and mid-sized businesses have nowhere near the same cash reserves or credit lines as big companies do, which makes the awarding of bonuses and raises a much riskier endeavor.
The January jobs report from the US Bureau of Labor Statistics showed that average hourly wages had risen 2.9 percent over the preceding year. Though not quite the 3.5 or 4 percent growth economists would like to see, that figure represents an encouraging sign that the American labor market’s perplexing combination of low unemployment and stagnant wages might finally be abating.
A new analysis from Reuters expands on the good news, finding that last year’s wage gains were geographically broad, not concentrated in a small number of states or cities. Ann Saphir, Jonathan Spicer, and Howard Schneider report:
The Reuters analysis of the most recent data available found that in half of the 50 states, average hourly pay rose by more than 3 percent last year. That’s up from 17 states in 2016, 12 in 2015, and 3 in 2014. Average weekly pay rose in 30 states, also up sharply from prior years, the analysis showed. Unemployment rates are near or at record lows in 17 states, including New York, up from just five in 2016, the Reuters analysis shows. …
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.
Previous surveys have predicted that most US employees will receive a small increase in their base pay this year, averaging about 3 percent, though high performers can expect a bit more as organizations shift their compensation strategies toward greater differentiation. That 3 percent raise appears to have become standard in recent years for the average employee, as a 4 or 5 percent annual raise once was.
A new survey of CEOs and CFOs from PwC, however, suggests that raises might be a bit higher than expected this year: The consultancy’s Q4 2017 Trendsetter Barometer report, based on interviews with 300 CEOs and CFOs during the last quarter of 2017, found that these leaders expect to raise wages by an average of 4.27 percent in the coming year, compared to the 3.39 percent figure PwC found in Q3 and just 2 percent a year ago. The last time panelists projected average wages would rise above 4 percent was during the second quarter of 2007, the report notes.
Plans for growth are also on the upswing, with 56 percent of the leaders surveyed saying they intended to hire new employees in the coming year, compared to 49 percent who said so in Q3. PwC attributes these bullish plans for 2018 to higher levels of business confidence and optimism about the future of the US economy, with 79 percent of leaders expressing optimism, a notable increase from 59 percent at the end of 2016.
New data released by the US Census Bureau on Tuesday shows that real median household income increased by 3.2 percent between 2015 and 2016, from $57,230 to $59,039, while the official poverty rate decreased by 0.8 percentage points to 12.7 percent. In absolute terms, that means 2.5 million fewer Americans were living in poverty last year than the year before, but 40.6 million still were. The 2016 poverty rate, the bureau notes, is only slightly higher than the 12.5 percent rate recorded in 2007, the year before the Great Recession began.
US workers’ incomes are also close to fully recovering from the recession, Aimee Picchi adds at CBS Moneywatch, with last year’s figures “just 1.6 percent below what households earned before the recession started in late 2007, according to the Economic Policy Institute, a left-leaning think tank”:
“We’re back to where we were before the recession,” said Sheldon Danziger, president of the Russell Sage Foundation, which focuses on poverty research. “You have an economy that has flat-lined for people with a high school degree or less since the 70s and flat-lined for the middle class during the last 20 years.” …
Wage stagnation has been a major concern among economists, policymakers, and most of all workers in the US since the Great Recession: While unemployment has fallen, the tight labor market hasn’t been pushing up wages very far or very fast. April’s jobs report from the Bureau of Labor Statistics, for instance, showed wages rising 2.5 percent year-over-year, well below the 3.5 percent figure the Federal Reserve is hoping to see.
Yet for all that, the New York Times’ Neil Irwin observes, wages have actually been growing faster than productivity and inflation over the past two years—in other words, faster than the economic fundamentals would tend to predict:
Over the last 24 months through March, inflation has come in at 1.4 percent a year, and productivity growth at 0.6 percent. Those are very low numbers. And in our supersimple model, you may expect average worker wages to have risen only 2 percent. In fact, the average hourly earnings for nonmanagerial private sector workers rose 2.4 percent a year in that period. You may not feel like cheering about that, but it’s more than we might have expected, with inflation and productivity so weak. The real mystery, then, isn’t why wages are rising so slowly, but why they’re rising so fast.