Slowdown in Wage Gains Muddies Picture of Tight U.S. Job Marketby
Average hourly earnings rose 2.5% in January from year earlier
Investors pare bets on steepness of Fed rate hikes in 2017
Just when the U.S. labor market looked like it was getting tight, worker paychecks are giving more of a mixed picture.
Data released Friday showed employers added 227,000 jobs to payrolls in January, the most in four months and above the 163,000 average pace projected by economists for 2017. Average hourly earnings rose 2.5 percent from a year ago, the weakest since August. The unemployment rate ticked up to 4.8 percent as the participation rate increased.
Investors pared bets on the steepness of Federal Reserve interest-rate increases this year, as the figures suggested there’s more room than previously thought for the labor market to grow without feeding into inflation. While the report represents the final figures under President Barack Obama, it indicates President Donald Trump could boost hiring and wages yet further as he plans tax cuts, infrastructure investment and looser regulation.
“There’s still a very strong resistance from firms to pay higher wages,” said Scott Brown, St. Petersburg, Florida-based chief economist for Raymond James Financial Inc. “There’s a gradual uptrend. You’re not seeing really rapid wage growth, but it’s sort of gradually creeping higher.”
Even so, the economy is “already in very good shape” and wage gains should still pick up over the course of the year, Brown said.
Trump said Friday at a meeting of business leaders that he’s “very happy” about the January job numbers and attributed them to his plans to reduce taxes and regulations. The data probably mark a continuation of hiring during the Obama years and an early response to the rise in optimism since Trump’s election, Bloomberg Intelligence economists led by Carl Riccadonna said in a note.
Other reports released Friday provided additional signs of economic improvement. U.S. service industries continued to expand at a solid pace in January, while factory orders excluding transportation equipment rose 2.1 percent in December, the biggest increase in more than five years and partly a reflection of higher petroleum prices.
The gain in average hourly earnings over the 12 months ended in January fell short of the 2.7 percent median forecast, despite any possible boost from minimum-wage hikes at the start of 2017. It followed a revised 2.8 percent gain the prior month.
Compared with December, worker pay increased 0.1 percent. Overall wage gains were depressed by a 1 percent drop in earnings within financial industries.
The causes behind the unexpectedly weak wage growth aren’t easily pinned down. While the government’s annual benchmarking process might have had some trickle-down effect, the turning over of the calendar year also could share the blame. Bonus season probably results in some fluctuation in reporting on pay, with businesses revising those increases back down when end-year plans changed.
The lower-than-expected reading on pay could also be attributed to the mix of jobs that were added, such as retail, “which are generally low-paying jobs,” said Beth Ann Bovino, U.S. chief economist at S&P Global Ratings in New York.
“We’re still expecting wages to continue to climb higher through the year,” with the pace of gains reaching 3.5 percent by year-end, Bovino said.