With steady job creation in January, slow wage growth still puzzles
Our Solman Scale U7 — which in addition to the officially unemployed, includes part-time workers for economic reasons and anyone who wants a job, no matter the last time he or she looked — ticked up to 11.6 percent from 11.3 percent.
The increase our Solman Scale U7 and in the unemployment rate was the result of more people entering the labor force, looking for work. The only issue is that they haven’t all found work yet, notes economist Elise Gould of the left-leaning Economic Policy Institute.
The small uptick in the unemployment rate is would-be workers returning to the labor market in search of jobs. Some found them, some didn't.
— Elise Gould (@eliselgould) February 3, 2017
Overall, January’s jobs report was solid and exhibited some recognizable characteristics.
“We’re seeing familiar themes — steady job creation and the ‘Is that all there is?’ question when it comes to workers’ pay,” said Mark Hamrick, Bankrate’s senior economic analyst.
After a .06 cent increase in December, wages increased a mere .03 cents in January.
“The very small wage increase was a surprise, especially because the minimum wage increases were expected to boost average hourly earnings,” said economist Jed Kolko of Indeed.com, referring to the minimum wage increases that went into effect in 2017 in 19 states across the nation.
As we’ve discussed before, wages have been the puzzle of the U.S. economy, or as Douglas Holtz-Eakin of the conservative American Action Forum called it last month, the “Achilles heel of [Obama’s] tenure.”
Economists generally expect wages to rise once the economy has hit full employment — that is, an unemployment rate at or below 5 percent. With a lower unemployment rate, workers become harder to come by, and employers have to offer more money to retain and attract talent. That’s the idea at least, but we’re not seeing that happen today.
Over the year, average hourly earnings rose by a mere 2.5 percent. What would economists like to see? Growth between 3.5 and 4 percent, said Hamrick.
Average hourly earnings still only rising at 2.5% over the year, suggesting inflation's unlikely to breach the Fed's 2% target anytime soon.
— Justin Wolfers (@JustinWolfers) February 3, 2017
Wage growth “has been the unfinished work of this economic recovery,” said Hamrick. “It helps to explain the remaining level of dissatisfaction among Americans with the economy.”
While it’s hard to know exactly what’s going on with average hourly earnings, “it’s possible that there is more slack in the workforce than what is widely acknowledged,” said Hamrick. Pointing to the 584,000 people entering the labor force in January, Hamrick noted that there may be more people on the sidelines waiting to jump back into the labor force once they think their job prospects have improved.
The retail trade, financial activities and construction industries all saw increases in employment in January, with construction job gains catching the eye of many economists.
The industry, which suffered major losses after the housing bubble burst, has been steadily recovering. And in January, construction jobs grew by 36,000 — nearly triple the amount from the previous month, said Hamrick.
Most of the increases have been in residential construction, said Kolko, noting that there has been an increase in home building.
“The American dream of owning a single family home hasn’t been killed; it’s been delayed,” said Hamrick.
At least, that’s what the construction industry hopes. We’ll see whether growth in the industry is sustainable.