Surge In Wages Expected In The Latest Job Report

The U.S. unemployment rate has fall down below 5 percent, which is the lowest since 2008, according to the latest Bureau of Labor Statistics Report. However, the pace of hiring has conspicuously slowed down. In the last month, it added 151,000 fresh jobs compared to 262,000 in December 2015. It raises worries, but the lower level of unemployment assures that the recovery on the employment front is firm.

The Bureau of Labor Statistics report in February says, “Job gains occurred in several industries led by retail trade, food services and drinking places, health care, and manufacturing. Employment declined in private educational services, transportation and warehousing, and mining.”

Another saving grace was that manufacturing, which has been badly hit by strong domestic currency and weak global demand, has added the highest number of jobs after August 2013. The supply chain delivery sector, such as courier and delivery remained dull in January after the warmth seen in November and December during the last year because of the holiday and festival season.

The report is significant in the context that it provides a strong signal about consumer spending—which is the key driver of the U.S. economy.

There is one very interesting data that emerged from the report: the number of people quitting jobs increased by 6.9 percent which is the highest in the decade. If we assume that people quit for better pay packets; it’s a clear sign of wage level increase in the economy. Perhaps this is the reason employers have also struggled to fill many open jobs, which could push them to offer higher pay to attract and retain workers.

For the past several years hiring has been pretty strong and filing for unemployment benefits has been less. However, that has started to change recently. The four-week filing for unemployment benefits has started increasing after October 2015 which raises some concern.

Federal Reserve Chairperson Janet Yellen begs to differ and she sounded optimistic about the job recovery. She is of the view that the economy just needs to create under 100,000 jobs a month to keep up with growth in the working- age population. If this is true, the job growth of 151,000 is pretty good considering that the unemployment rate is below the 5 percent level.

Is an average U.S. worker finally going to get the raise?
There is a positive news on this front. After a long period of scant real gains, wages picked up in the month of January. This is a sign that the U.S. companies will have to pay more now to attract and retain employees. The 0.5 percentage point increase in the average hourly earnings is being seen as the brightest spot in the report.

Diane Swonk, an independent economist in Chicago said in the New York Times news report, “That gain in average hourly earnings is significant, but it needs a more sustained increase to make up for the years of stagnation. However, it’s a move in the right direction, and that’s reassuring.”

Most of the economists suggested that the job growth rate is reassuring considering the economic turmoil in China and problems in other emerging nations.

Final thoughts
The addition in jobs may have disappointed many, but this is quite a good sign considering the volatility in financial markets and signs of contraction in manufacturing and corporate profits. The real wages have increased and more Americans joined the workforce. If the wage hike takes place in corporate America, it may lead to increased inflation adding pressure on the Fed to raise interest rates.