US Jobs Data Remains Robust In January

According to the US Labor Department, the US economy created 200000 jobs in January. The level of unemployment (i.e. people registered as being unemployed and actively seeking employment) held steady at 4.1%. Many economists regard a level of 5% unemployment to be “full employment” for practical purposes, so it is unlikely to sink below this level if this approximation is correct.

The new job creation figures were driven by hiring opportunities in the health care, construction and food services sectors in particular.

Of greater significance, perhaps, is that wage growth has enjoyed its best performance for nearly a decade. The average hourly wage stood 2.9% higher in January 2018 than it had in January 2017, the strongest rise in 8 years. According to the Labor Department, average hourly wages rose by 75 cents over the year to $26.74 and showed a 9-cent gain in January 2018 over December 2017. 18 US states have also recently increased the statutory minimum hourly wage. Annual inflation in the USA is currently running at 2.1%, so the wage increase does reflect a very modest rise in spending power for the average American worker.

In principle, full employment ought to lead to higher wages as employers seek to attract workers from a shrinking pool and need to make their offers more attractive. This reasoning was being used in some quarters to explain this month’s readjustment in US and global stock markets, by suggesting that increased wage pressure would lead to higher (general) inflation, making a faster rate of normalisation of interest rate policy more likely. However, it has also been suggested that lacklustre pay increases have risked a stagnation in consumer spending which could lead to a fall in demand for domestically produced goods. Of these two competing arguments, the latter is more convincing as few people would notice an additional 0.8% rise in their purchasing power (besides, anecdotal evidence suggests that prices rise at a faster rate than the official inflation figures suggest). Prudent people will only spend more on discretionary purchases when they feel they can afford to.

Dr. Mike Campbell is a British scientist and freelance writer. Mike got his doctorate in Ghent, Belgium and has worked in Belgium, France, Monaco and Austria since leaving the UK. As a writer, he specialises in business, science, medicine and environmental subjects.