Job growth on a roll, will wages follow?

The recovering U.S. economy has made its strongest showing yet. Employers created a million jobs since November -- the best three-month average in 17 years. And January also boasted the biggest wage rise in six years. But not all sectors saw the same level of growth. To discuss the data, Jeffrey Brown speaks with Diane Swonk of Mesirow Financial.

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  • JUDY WOODRUFF:

    Now a closer look at what's driving those surprisingly upbeat jobs numbers in the U.S.

    Here's Jeffrey Brown.

  • JEFFREY BROWN:

    Not only did today's labor report show that more people found work in January; it also revised the numbers upward for November and December, making 2014 the strongest year for job gains since 1999. And more good news: The increase in wages last month was the largest in six years.

    Diane Swonk is a senior managing director and chief economist for Mesirow Financial and joins me from Chicago.

    And, Diane, it looks as though the upswing is bringing more people back into the job market. Can you tell us who, what age groups, for example?

  • DIANE SWONK, Mesirow Financial:

    Yes.

    One of the biggest encouraging points about the job participation rate, where more people threw their hat in the ring, was that younger people were rejoining the labor force. Many of these people had been sidelined for many years; 25-to-34-year-old men, in fact, had the highest labor force participation rate in two years, a big jump there.

    We also saw an increase in the 35-to-44-year-old age group. This is a group that the Federal Reserve had been watching carefully because they had been sidelined by the recession, but clearly they're too young to retire and they had to come back at some point in time. So the fact that they were reengaged is quite encouraging.

  • JEFFREY BROWN:

    And this of course does explain why the unemployment rate ticking up is actually a good thing, considered a good thing in this case, because of the participation.

  • DIANE SWONK:

    Absolutely. Absolutely. More people throwing their hat in the ring and being reengaged with the hope they find a job now, rather than just giving up, is good news.

  • JEFFREY BROWN:

    Now, the wages going up, this has been a big problem for many years. Even as the job sector has gotten better, wages have been a problem. So, what do we see now?

  • DIANE SWONK:

    Well, the wages did snap back after slowing a bit in December. On a year-over-year basis, though, we're still really stagnant on wage gains. They're running only 2.2 percent, which is well below what the Fed would like to see, closer to 3 percent to 4 percent wage gains, to really regain the ground lost in median family incomes out there.

    It's also important to note that we saw a lot of states pass minimum wage increases over the last year and nine states increased minimum wages in the month of January, and a lot more are coming in, in June. So, what we're seeing is that cascading effect of minimum wages lifting up the bottom a bit, particularly in states like Florida and Arizona in January, which have a lot of those low-wage jobs that we have generated in recent years.

  • JEFFREY BROWN:

    And as we see this growth, do we see big regional differences, do we see big job sector differences?

  • DIANE SWONK:

    There are big sectoral differences.

    These gains were pretty broad-based. Of course, the losing sector was the mining sector. Oil prices have fallen and with that we have seen a decline in mining and oil-related jobs, oil industry-related jobs. Now, that is going to be a complete flip-flop in 2015 from what we saw in previous years, because the real strong point, Texas, as a matter of fact, generates some 400,000 of the more than 300 — three million jobs generated last year just came from the state of Texas alone.

    They're a very diversified economy, more diversified than they once were with high-tech and oil, but clearly oil is going to hold them back a bit and slow down employment gains. We're also going to see that in oil patch states.

    On the flip side of it, places where we see a lot of leisure and hospitality, people starting to spend more discretionary spending, places in the south like Florida gaining some momentum with these low-wage jobs and finally some of those jobs coming back in business services and finance as well.

  • JEFFREY BROWN:

    Even with all of these gains, there are still so many people out of the job market. What other kinds of concerns keep you awake at night or keep you — are on the forecast here?

  • DIANE SWONK:

    Certainly, there still is — we have got a nice tailwind going into 2015 with the upward revisions we saw in November and December. And that's good because that's a lot more paychecks to cushion us and buffer any headwinds coming our way, but headwinds are out there.

    We have a strong dollar and weak growth abroad and a lot of turbulence that could come from abroad. And we don't want those tremors to come up as tidal waves on our own shores. I think our shores are better fortified than they once were and we can better handle those waves coming in, but those waves are still out there from abroad.

    The Eurozone is still trying to navigate its own crisis. We have got the crisis in Russia and the Ukraine. We have got crisis in the Middle East. All those things can be destabilizing as we move forward.

  • JEFFREY BROWN:

    And just very briefly, hovering over all of this of course is what the Fed would do next, when it might raise interest rates. Did today's number have any influence that you can see?

  • DIANE SWONK:

    My view is that the Federal Reserve has shown extraordinary patience — it's a word that they use — in terms of their liftoff on interest rates.

    And with the wage gains coming back, they welcome that, but they are still stagnant relative to the overall year-over-year gains. They're still not enough. And this is a Fed that's really been very clear about their willingness to not only allow the economy to expand and recover and regain ground loss, but do some catchup, too.

    And I think they will be willing to wait until late in the third quarter before they start to raise rates. And even then, even as the ground below us is firming, they will be treading as if they're treading on thin ice to hedge those downside risks, particularly from abroad.

  • JEFFREY BROWN:

    All right, Diane Swonk, thank you, as always.

  • DIANE SWONK:

    Thank you.

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