Booming Job Growth in February, But Surprisingly Slow Wage Growth


The U.S. economy added 313,000 jobs in February, well above economist expectations of 205,000. Additionally, previous estimates for December and January were revised upwards by a combined 54,000 jobs.

U.S. Employment

Nonfarm Payrolls, 1,000 Persons

Source: Thomson Reuters Datastream. 3/9/18.

In another sign of strength, people are working more. The average workweek for all employees increased to 34.5 hours from 34.3 in January, manufacturing employees worked the most hours since WWII, and participants re-entered the labor force – the most in 18 years.

Surprisingly, wages grew tepidly – up only a +0.1% in February. Just last month, in January, wages accelerated +0.4%, causing fears of accelerating inflation and rapid Fed tightening – a sentiment that triggered a correction in equity markets. Today, that wage gain was revised down slightly, to +0.3%.

Average Hourly Earnings (3/13 – 2/18)

Source: Thomson Reuters Datastream. 3/9/18.

Small Wage Gains – Big Surprise

Slow wage growth is a surprise, given that a wide range of indicators point to a tightening labor market. The National Federation of Independent Business’s survey showed a record high percentage of small businesses with job openings that were hard to fill. And yesterday’s Beige Book1 reported tight labor markets and accelerating wage gains in many regions.

The 12-month growth rate of average hourly earnings came down to 2.6%, a level slightly above the average of the last five years, but still distant from historical levels that have signaled labor shortages, an overheating economy, and rapid Fed tightening.

“Goldilocks” Still Here?

Viewed in isolation, this job report has a “Goldilocks” feel to it. With strong job growth, the labor market surely is warm, and getting hotter, but given still moderate wage growth, it remains “neither too hot, nor too cold, but just right”. Today’s report is, therefore, good news for financial markets. At the same time, a strong labor market is likely to reinforce expectations that the Fed will continue to normalize monetary policy, which means continued headwinds for fixed-income markets, even if wage growth is not yet showing signs of overheating.

1. The Beige Book is the Federal Reserve’s survey of conditions across districts, conducted in preparation for the next FOMC meeting.

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Poul Kristensen, CFA

Managing Director, Economist, and Portfolio Manager, New York Life Investment Management

Poul Kristensen, CFA is Managing Director, Economist, and Portfolio Manager with New York Life Investment Management’s Strategic Asset Allocation & Solutions (SAS) Group

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