US labour market report shows that jobs growth is in good shape as wage momentum remains muted

With 261,000 jobs added, the latest official labour market report for October shows the strongest jobs growth in fifteen months. Employment statistics in September were, however, distorted considerably by the effects of the serious hurricanes, resulting in only marginal employment growth. Even if the catch-up effect on the October data is not considered, some 150,000 (net) new jobs were still created – in other words, solid employment growth. The US central bank is therefore expected to remain on its path of moderate normalisation.

The monthly survey of private households paints an almost even more positive picture of the US labour market. Unemployment remained on its downward trajectory to reach a level of only 4.1 percent. A lower rate was last measured in December 2000. Other indicators, such as a visible decline in the number of long-term unemployed and “involuntary part-time workers”, imply that jobs growth is in good shape.

In our opinion the momentum on the US labour market will be maintained in the months ahead. Sentiment surveys in the industry are at a high level and have climbed even further recently. Most enterprises (the big as well as the numerous small companies) are, however, counting firmly on the tax cuts announced by the Trump administration. Even so, significant delays or watering down brought about by the political process could burden jobs growth in the months ahead. But this is unlikely to stall the jobs engine completely; on the one hand, the order situation in the industry has improved visibly, which also benefits the adjacent services. On the other hand, the ageing population ensures a steady increase in jobs in the healthcare sector.

Despite the robust pace of employment, wage momentum remains quite muted in the United States. According to the most recent labour market report, wages in October stagnated at the previous month’s level, while increasing only slightly year-on-year to 2.4 percent. The dampening effect of the “hidden reserve” of unemployed persons is, however, easing gradually. One indicator of this is the recent marked decline in the number of part-time workers who would like to change to full-time employment. This group had previously enhanced its income by extending the period of hours worked. As this “buffer” continues to disappear, the pressure on wages is expected to rise.


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