When the economy generates so many new jobs that the unemployment rate falls to a nearly 50-year low, wages and salaries for American workers are bound to rise.
Here’s what to watch in the employment report for October due Friday morning.
Earlier this week the government said wages and salaries for workers in the private sector rose by 3.1% in the 12 months ended in September — the biggest yearly increase since 2008. It’s the first time pay has topped the 3% mark during an economic expansion that’s almost nine and a half years old.
Many economists predict another key barometer of worker pay, known as average hourly earnings, will also reach 3% for the first time since the end of the Great Recession of 2007-2009.
Hourly wages are seen rising two ticks to a 3% pace. By contrast, the 12-month increase in wages was a smaller 2.3% in October of last year.
If wage growth hits 3%, don’t be surprised if the mini-stock rally this week falters. Rising wages raise the odds of the Federal Reserve boosting interest rates more rapidly than investors now expect, an outcome damaging to stocks. The Fed wants to make sure inflation doesn’t get out of hand.
Rebound in hiring
What’s driving wages higher is a growing competition among firms to hire from a shrinking pile of workers as companies strive to fill record job openings. The U.S. likely added about 202,000 new jobs in October, according to the MarketWatch forecast.
Economists predict hiring will snap back after a bit of a late-summer slowdown. The U.S. added just 165,000 new jobs in July and 134,000 in September, sandwiched around a 270,000 gain in August.
Look for the possibility of hiring being revised substantially higher for September as well.
Can the U.S. keep adding 200,000 new jobs a month like it’s done so far in 2018? Probably not given the shallow pool of available labor. But hiring could keep up at least until the new year.
Lowest unemployment in 48 years
The unemployment rate tumbled to 3.7% in September to touch the lowest level since 1969. It’s likely to go lower still in the near future, but perhaps not this month. The jobless rate rarely falls sharply two months in a row.
The unemployment rate still looks quite low even through a broader measure called the U6 that includes part-timers who want full-time work and job seekers who recently gave up looking.
The U6 jobless rate stood at 7.5% in September, the lowest rate since 2001. Except for a brief stretch from 1998 to 2001, the broader unemployment rate seldom drops below 8%.
One potential fly in the ointment, so to speak, is the effect of Hurricane Michael. The storm mostly battered a small section of the panhandle along the Gulf Coast, but it could cause job creation to fall short of Wall Street’s mark.