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General Motors production workers work on the 10-speed transmission assembly at the General Motors Powertrain Transmission plant in Toledo, Ohio, March 6, 2019. The manufacturing sector lost 6,000 jobs in March after gaining only 1,000 in February. Photo by Rebecca Cook/Reuters

Why wages are still lagging despite strong job growth

The U.S. economy added 196,000 jobs in March, and the unemployment rate held steady at 3.8 percent, according to the latest data from the Bureau of Labor Statistics.

The strong jobs gains were welcomed news after a poor showing last month. The economy added only 33,000 jobs in February, a number that was revised slightly upward from an initial estimate of 20,000.

Economists had cautioned that February might be a one-off drop because severe weather and the government shutdown put a damper on hiring. It now appears that was likely the case.

“Today’s numbers showed the job creation engine is still running strong after backfiring in February,” said Robert Frick, a corporate economist at Navy Federal Credit Union.

Job growth has been solid in the past several years, despite increased fears of a recession. As Betsey Stevenson, a former member of the White House Council of Economic Advisers under the Obama administration, pointed out on Twitter: Average monthly job growth has remained above 170,000 since 2011.

One disappointing number from the report was wage growth.

Wage growth continues to outpace inflation, which sits around 2 percent. But it rose at a slower pace in March than the month before. Average hourly earnings increased 4 cents to $27.70 last month, marking a 3.2 percent gain over the past year. That comes after a 10-cent bump in February.

The “3.2 percent is not so bad, but we would have liked to see things continue on a more positive trajectory,” said Dan North, the chief economist at Euler Hermes North America.

North attributes the weaker wage increase to employers’ difficulty in finding skilled labor.

Employers are being forced to hire people who are not completely trained on the job and, as a result, productivity remains relatively low, he said. Low productivity generally translates into low wage growth.

“It’s really matching the right talent to those roles that has become a struggle,” said Amy Glaser, senior vice president of the staffing firm Adecco USA.

She said employers are coming around to the idea that they need to raise wages to attract talent, but they are also offering other benefits, such as better health care and more flexible schedules that do not show up in the wage data.

While the markets are likely to welcome the jobs gains, there are other indicators that give economists pause and hint that a recession could come later this year or early next year.

Consumer spending remains relatively low, orders for durable goods are slow and the yield curve recently inverted. Manufacturing also lost 6,000 jobs in March, the worst showing in nearly three years.

Economists say those indicators, combined with the wage growth data, are likely to keep the Federal Reserve on its current path of remaining “patient,” with no plans to raise interest rates anytime soon.

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