The U.S. labor market has moved past a couple months of hurricane disruptions and returned to its regularly scheduled programming: solid hiring but tepid wage gains that suggest things aren’t as tight as the unemployment rate suggests.
Payrolls rose 228,000 in November, above the median economist estimate of 195,000, Labor Department figures showed Friday. Average hourly earnings increased 2.5 percent from a year earlier, less than the 2.7 percent projection, and October’s figures were revised lower. The jobless rate held at 4.1 percent, the lowest since late 2000.
While the job market remains a bulwark for the economy and investors see a Federal Reserve interest-rate hike next week as a near-certainty, the lack of a sustained acceleration in wages remains a puzzle that could factor into the pace of increases in 2018. Jerome Powell, President Donald Trump’s nominee to head the Fed, said last month at his confirmation hearing that he doesn’t see wages signaling any tightness in the labor market.
“Wage growth has been muted thus far,” especially given the “very healthy pace of job creation,” said Michelle Meyer, head of U.S. economics at Bank of America Corp. “It’s been the story throughout the course of this year,” though a falling unemployment rate will “inevitably” push pay gains higher, she said.
A separate report on Friday showed U.S. consumer sentiment dipped for a second month while remaining around levels consistent with a steady economy and solid job market, with stocks near record highs. The University of Michigan’s preliminary December gauge fell to 96.8, compared with the median estimate of economists for 99, as optimism waned and inflation expectations rose.
Average hourly earnings rose 0.2 percent from the prior month following a revised 0.1 percent drop, the report showed. Analysts had penciled in a gain of 0.3 percent for November. The gain from a year earlier followed a downwardly revised 2.3 percent advance for October.
Economists expect that in time, wages will post a sustained pickup, which has remained elusive in this expansion even though labor-market slack is steadily disappearing. Faster gains in paychecks would boost consumer spending, which accounts for about 70 percent of the economy.
What Our Economists Say…
“Even though job gains are well in excess of the natural growth rate for the labor market, labor scarcity is not yet driving wage pressures higher. The moral of the story from this jobs report is that full employment is indeed much lower in the current cycle relative to history. While average hourly earnings were tepid, the sizable payroll gain and increase in the nonfarm workweek indicate that there was substantial wage-income generation in the economy last month.”
–Carl Riccadonna and Yelena Shulyatyeva, Bloomberg Economics
For more, see our full React piece.