Solid Job Growth in November
Nonfarm payroll employment was up 228,000 in November, beating expectations. Hiring was broad-based across industries. The recent bounce in hiring is partly a rebound from the disruption caused by hurricanes Harvey and Irma. Still, job growth at this rapid pace indicates that the economy is showing solid economic growth in the fourth quarter. Job growth averages 174,000 per month so far in 2017.
Figure 1: Businesses Continue to Hire
U.S. Employment – Nonfarm Payrolls; 1,000 Persons
Sources: Thomson Reuters Datastream, New York Life Investments, as of 12/8/17. Nonfarm payrolls include any job except for farm work, unincorporated self-employment, employment by private households, the military, and intelligence agencies.
Unemployment was unchanged at 4.1% – a 17-year low. However, if hiring continues at, or close to, November’s pace, unemployment should fall below 4%. This will raise the question of whether labor shortages will soon begin to stoke upward wage pressure in some sectors, and possibly wider inflation.
Wage Inflation Remains Stubbornly Low
Until now, wage inflation has remained stubbornly low, despite record job openings and surveys showing businesses increasingly finding it hard to fill open positions. This remained the case in November, when average hourly earnings rose only 0.2%, below expectations.
Over the last 12 months, average hourly earnings are up 2.5%, a slow pace of growth, given the underlying strength of the job market. Part of the explanation may be that the average wage number is held back by the retirement of Baby Boomers, who are replaced by younger workers that are paid less per hour. The Atlanta Fed’s Wage Tracker, which tracks wage growth for the median worker, shows a growth rate of 3.4% year-over-year in October, indicating that the median worker is experiencing better wage growth than what the headline average hourly wage number shows (Figure 2).
Figure 2: Wages Increased in November
Average Hourly Earnings vs. Median Wage Growth (12/07 – 11/17)
Sources: Thomson Reuters Datastream, New York Life Investments, as of 12/8/17. Average hourly earnings is calculated by the Bureau of Labor Statistics (BLS) and represents the average wage of all private employees. Median Wage growth is tracked by the Atlanta Fed.
With surveys showing businesses planning continued, solid hiring in the coming months (Figure 3), we expect the unemployment rate to decline further. Gradually, this will lead to more wage growth. For now, with hiring strong and wage inflation remaining low, it seems the job market is still “neither too hot, nor too cold, but just right.”
Figure 3: More Businesses Plan to Hire
NFIB: Hiring Plans vs. Jobs Hard to Fill (Survey Response: Percentage of Firms)
Sources: Thomson Reuters Datastream, New York Life Investments, as of 12/8/17. The NFIB Research Foundation Survey collects small business economic trends data using surveys from NFIB’s membership.
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The Atlanta Fed’s Wage Growth Tracker is a measure of the nominal wage growth of individuals. It is constructed using microdata from the Current Population Survey (CPS), and is the median percent change in the hourly wage of individuals observed 12 months apart.
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