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 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. …
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US employers added 148,000 jobs in December for a total increase of 2.1 million jobs across last year, according to the latest employment data released by the Bureau of Labor Statistics on Friday. The monthly figure, while still reflecting a strong labor market, was considerably lower than the revised totals of 252,000 and 211,000 jobs added in November and October, respectively. Figures for these months were revised downward by a total of 9,000 in Friday’s BLS report. The annual increase was slightly below the 2.2 million jobs added in 2016. The greatest job gains last year came in the health care, construction, food service, and manufacturing sectors, whereas retail employment declined by 67,000.
The unemployment rate held steady at 4.1 percent, remaining at its lowest level since December 2000 for the third month running. The total number of Americans employed part-time who would prefer full-time work was “essentially unchanged” at 4.9 million in December but down 639,000 for 2017, while the number of long-term unemployed fell by 354,000 over the course of the year to 1.5 million last month. Average hourly earnings rose by 65 cents, or 2.5 percent, over the year.
Economists’ views of what this portends for the coming year differ, based partly on how much impact they think the household and corporate tax cuts passed by Congress last month will have on hiring and consumer spending. “The pace of job creation in 2017 suggests the expansion may have more room to run eight and a half years after the most recent recession ended,” the Wall Street Journal’s Eric Morath writes, while the tax cuts could “turbocharge growth,” as Joseph Brusuelas, chief economist at consulting firm RSM US, puts it. Glassdoor’s chief economist Andrew Chamberlain takes a different view:
The US economy added 228,000 jobs in the month of November, outperforming economists’ expectations, while the unemployment rate remained at 4.1 percent, its lowest since 2000, according to the latest figures from the Department of Labor. Average earnings rose by five cents an hour, resulting in a total increase of 64 cents, or 2.5 percent, in the past year.
The jobs report reflects the continued strength of the American economy, with wage growth finally starting to pick up after a years-long period of stagnation despite of a historically tight labor market. It also shows that the mainland US has rebounded strongly from the major hurricanes that did extensive damage to Florida and Texas in September. The small job loss reported that month was later upward to a small gain, meaning the US has added jobs for 86 consecutive months. The monthly figures do not cover the territories of Puerto Rico and the US Virgin Islands, however, which were devastated by Hurricane Maria and are still struggling to rebuild.
The problem remains that the tightness of the labor market isn’t translating into real earnings growth for US workers, as most economic models predict it should. With talent in short supply, employers are under pressure to raise wages, the New York Times reports, and the slower-than-expected wage growth over the past year may reflect businesses being unable to afford the wages candidates are demanding:
Most economists expect wage growth to pick up as the unemployment rate falls. Other measures of earnings have already shown modestly faster gains, and there are signs that businesses are feeling pressure to raise pay. For the first time in six years, chief executives surveyed by the Business Roundtable, a coalition of big corporations, reported that labor expenses were their biggest cost pressure in the fourth quarter.
New figures released this week from the UK’s Office for National Statistics show that real wages there fell in the year to April 2017 by 0.4 percent, the BBC reports:
The Office for National Statistics (ONS) said this was the first fall in three years. It says that although wages rose by 2.2% in the year, inflation rose by more, eroding any gains. The median – middle – amount earned was £550 a week. … The weekly income figure shows the first recorded fall since April 2014, and follows a rise in inflation in the wake of the Brexit vote in June last year.
Earnings, not adjusted for inflation, rose in 2017 by more among the lowest-paid workers. For those in the lowest 10%, full-time earnings rose by 3.5% compared with 2016.
Also, the statistics show the gender pay gap in the UK falling to its lowest level since the government began measuring it 20 years ago: 9.1 percent, down from 9.4 in 2016. That reflects the relative gains British workers made toward the bottom of the payscale, Stephen Clarke, policy analyst at the Resolution Foundation, tells Sky News:
The latest salary planning survey from Aon Hewitt finds that most US organizations plan to keep wages relatively flat for most employees in 2018, with base pay increases averaging 3 percent and spending on bonuses and other variable pay declining to 12.5 percent of salary budgets, the lowest since 2013.
“The economic outlook for most industries continues to improve with increased demand for goods and services and stronger job creation, but companies remain under pressure to increase productivity and minimize costs,” Ken Abosch, broad-based compensation leader at Aon, said in a press release. “As a result, we continue to see relatively flat salary increase budgets across employee groups, with most organizations continuing to tie the majority of their compensation budgets to pay incentives that reward for performance and business results.”
Two-thirds of organizations are increasing the differentiation of their merit pay in 2018, Aon finds. Among those employers, 40 percent are reducing or even eliminating raises for low performers, 18 percent are using a more highly leveraged merit increase grid, and 15 percent are setting more aggressive performance targets.
Last year, an alarming report from the left-leaning Economic Policy Institute found that the gap in income between black and white Americans had grown from 1979 to 2015, with black men earning 22.0 percent less, and black women making 34.2 percent less, than white men with the same education, experience, and geographical location. A new study by the Federal Reserve Bank of San Francisco confirms that finding, showing that the black-white wage gap has been growing and furthermore, that economic factors do not explain why.
The hourly wage ratio of the average black male to his white male counterpart shrank from 80 percent in 1979 to 70 percent in 2016, the San Francisco Fed finds. Black women earned 95 percent of what white women made in 1979, but that has gone down to 82 percent in 2016. While some of the gap can be explained by attributes such as location, education, working hours, job type, etc., the reason for its growth is less tied to those factors and economists are struggling to explain the increase. The Fed says this “implies that factors that are harder to measure—such as discrimination, differences in school quality, or differences in career opportunities—are likely to be playing a role in the persistence and widening of these gaps over time.” Eshe Nelson at Quartz adds:
In fact, additional research by the San Francisco Fed showed that black people with bachelor’s degrees saw the earnings gap with their white counterparts increase by more than for high-school graduates. … Ultimately, it seems that discrimination—whether in the “unexplained” category, or more structural racial bias that exists in educational systems and elsewhere—is widening the disparity in wages between black and white workers. Time alone will not close this gap, researchers conclude. … time seems to be making it worse.
One factor that may also account for the recent rise is that black workers are hit harder by recessions and recover more slowly than the rest of the labor market. It’s very likely that the cumulative effect of the recessions of 1987 and the late 2000s reversed, or even worsened, any progress made from the late 1960s to the early 80s. Bloomberg’s Jeanna Smialek and Jordyn Holman idenfity why this is such a problem: