US labour market powers into the second half, while wage increases remain modest

In July, the number of employees in the US labour market rose by 157,000, or so the recently published official labour market report shows. This growth in jobs was slightly below expectations, but since the rise in the two prior months was revised upwards by a total of about 50,000 jobs the overall picture remains intact: The job creation engine continues to run smoothly. This is emphasised by the drop in the unemployment rate from 4.0 to 3.9 percent. Above all the number of those who have only lately become unemployed has visibly dropped; however, countless of the long-term jobless have been integrated into the labour market.

In the coming months, we expect the job creation momentum to remain robust, the reasons being ongoing good economic sentiment, well-filled order books, and strong corporate investment activities. The unemployment rate will presumably be just short of four percent for the year; the last time such a low level was achieved was in 2000. It therefore comes as no surprise that the recent statement by the Fed governors reflects their essential willingness to press ahead with their policy of moderately raising interest rates.

As in the first half of the year, in July the number of employees in industry visibly rose. The increase by 52,000 persons was mainly attributable to manufacturing, but the construction industry also continued to hire. If in the second half jobs go on being created at the same comparatively high rate as in recent months, then the year may end with a 2018 increase of no less than 2.5 percent year-on-year. Yet even if job creation in manufacturing were to stop immediately, the increase for 2018 would still read 1.9 percent thanks to the prime trend in the course of the year to date. Either way, this year will see the strongest increase in employment since 1984!

This reinvigoration of US industry will likely be much to the taste specifically of Republican politicians a few months before the mid-term elections to Congress, as the party has only a slender majority in both houses. However, despite the slight recovery in recent years the number of persons employed in industry looks set at year end to still be below 13 million, while in 2000 the sector still had a payroll of more than 17 million.

What remains unchanged is that the vast majority of the gainfully employed, or to be more precise over two thirds, work in the private service sector. In July, for the very first time slightly more than 106 million persons were in employment. This highly diverse sector actually regained pre-crisis employment levels as early as autumn 2012.

Despite the good state of the labour market, sharp wage increases have not materialised. In July, hourly wages rose 0.3 percent on the month, but the gain on the prior-year month remained unchanged at 2.7 percent, as it had in May and in June. The details of the labour market statistics make it clear that above all in the sector of the “involuntary part-time employed” some reserves still exist. However, it is not just the hidden reserves, but also a greater need for security which originated in the high unemployment rates of the last economic crisis that have dampened wage demands. The rate of wage increases will most probably start to pick up before all the reserves start to dry up. In the final instance, in 2018 the average wage increase for the year will again lag behind the pace seen in prior upturns and will remain below three percent.


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