The job engine in the United States not only ran smoothly in February; the pace of growth also increased visibly. The marked increase in employment numbers – 313,000 persons added – matches the latest increases in the survey levels. The ISM industrial climate is trading at a 13-year high and sentiment among the service entities is “dazzling”. It was therefore hardly surprising that the industrial sector provided important and comparatively strong momentum for the acceleration in jobs growth.
Although the solid payroll growth in the previous months was revised upwards in the latest publication, wage momentum is only muted in the February report, with hourly wages rising by a meagre 0.1 percent only over the previous month. The year-on-year increase of 2.6 percent is also comparatively low, considering that the US economy is experiencing its ninth year of robust growth and unemployment has fallen to a historical low.
Accordingly, we do not expect wage growth to gain much momentum during the rest of the year, despite the ongoing robust upside trend in employment. This should be ensured by limiting factors such as advancing automation and the associated streamlining of jobs, as well as the higher value placed by employees on “job security”. At its next meeting, the Fed is not only expected to bear in mind the strong employment momentum but also the restrained wage increases, as these lower the threat of a sudden, significant rise in inflation.
The Fed will, however, continue on its course of moderate monetary policy tightening. On the other hand, we expect the manufacturing sector to provide further positive impetus for the labour market in the coming months, albeit not quite as strong as in February. This in turn will likely maintain the downward trend in unemployment. It is no great surprise that unemployment has persisted at the low level of 4.1 percent for the fifth consecutive month. The inflow of labour supply is generally very high especially at the start of the year and drives up the number of short-term unemployed temporarily. Mind you – only temporarily.
The substantial total increase of 100,000 in the numbers employed in the goods producing industries (manufacturing sector, construction industry and mining) was very prominent in the February report on the US labour market. This sector of the economy last recorded a similarly sharp increase in August 1998. A gradual upside trend has been intact for several months now, with some 30,000 new jobs created on average in the manufacturing sector in each of the past few months. Even so, it is still “a tender shoot growing there”, considering the decades of jobs losses in the industrial sector in the US. However, cost-increasing protectionism is unlikely to be of much help, as industrial products in particular are subject to international competition.