US labour market: strong job growth accompanied by a slight upturn in wages

Donald Trump and the Republican Party could hardly wish for a better labour market report so close to the midterm elections. The number of people in work rose by a quarter of a million in October alone. This means an impressive growth in the number of people in employment of over 2.1 million so far this year. In spite of an obvious influx of manpower, there has been no rise in the historically low unemployment rate; it still stands at 3.7 per cent.

However, this is not the end of the good news: employment in industry has again benefited from a strong economy, not only continuing to rise but also showing an increase of 67,000 persons − the strongest increase in eight months. These figures are likely to be seen by the US president and his supporters as proof that he has implemented one of his most important electoral promises. In 2016, after all, he assured his supporters that he would “make American industry great again”.

However, the latest report also shows a noticeable 3.1 per cent increase in wages against the same month last year. This is the sharpest rise since April 2009. In view of the fact that 2018 is the eighth year in a row with job growth in the US, the October rate has not come as any major surprise. However, unemployment, which has been at a historically low level for some time now, is already leading to a real shortage of qualified manpower in some sectors.

The fact that wage growth has so far lagged behind the pattern in previous periods of upturn mainly reflects the depth of the previous recession. If we look at the increase in wages against the previous month, however, it shows a rise of only 0.2 per cent, in other words, still a moderate trend rather than a jump. Nevertheless, a steady uptrend has established itself, which could suddenly pick up speed as time goes on. For this reason especially, the Fed is likely to continue its tightening course; after all, it will be keen to prevent any wage-price spiral getting into gear.

Ultimately, we expect wage pressure to increase further in the next few months. Generally favourable economic conditions suggest that job growth will continue and therefore that the unemployment rate is likely to dwindle further. However, automation and digitization are not only limiting wage demands in the manufacturing sector but also among employees working in services companies.

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