The most recent labour market report shows that the world’s largest democracy is driving job growth at an encouraging speed at the start of the second half of the year. The number of new jobs created in the private sector alone rose by 205,000, while the public sector recorded a marginal increase with 4,000 new jobs added. As a result, the unemployment rate fell from 4.4 to 4.3 percent. Even though the success story of the labour market in the last six years is very reminiscent of a “perpetuum mobile”, a closer look identifies signs of a gradual slowdown in employment momentum already since 2015. However, we can hardly find any reason for pessimism, as the economic surveys continue to point towards robust payroll growth. The latest labour market report also confirms that the service sector is leading the way as the key driver of job growth. On the other hand, while payroll growth in the manufacturing sector has consistently been in positive territory for the past few months, it would only suffice at best for a recovery at snail’s pace.
Despite this very positive development overall, wage momentum still lags behind that of the pre-crisis years. The latest report also shows an increase of only 2.5 percent in hourly wages over the same period of the previous year. This is due to the depth of the last financial and economic crisis, as the “hidden reserve” of returnees continues to have a braking effect. It is substantiated by the following figures: The number of people of employable age in the US has increased by 5.0 percent since 2007 compared with the rise of only 4.6 percent in the supply of labour. The supply of labour represents those persons who are active on the labour market – in other words those who are included in the statistics as unemployed or employed.
However, the subdued wage momentum is leaving no visible trace on consumer sentiment. Quite the contrary – the Conference Board Consumer Confidence Survey demonstrates excellent sentiment, with the Conference Board Consumer Confidence Index rising to 121.1 points in July and thus reaching a four-month high. Since the start of the year, this indicator has been higher than in 2006 and 2007!
The US labour market continues to develop in a very positive manner overall. Rising employment and moderate wage momentum continue to support private consumption, the mainstay of the US economy. However, there are no signs yet that the moderate wage increase is driving up inflation.