The Corner

Economy & Business

Wage Growth Accelerated in January

We’ve been waiting for faster wage growth and now we have it. Average hourly earnings rose 0.3 percent in January and are up 2.9 percent in the past year, the largest increase for any twelve months since 2008–09. The difference is that, back then, wage growth was decelerating from an even faster pace and now we have wage growth that’s accelerating instead. Look for more acceleration in the months ahead as the effects of lower tax rates (particularly on companies) and deregulation ripple through the economy, encouraging more investment in the U.S.

Job growth was strong in January, as well, with nonfarm payrolls up 200,000 and civilian employment, an alternative measure of jobs that includes small-business start-ups, growing 409,000. In the past year, these two measures of jobs are up 176,000 per month and 196,000 per month, respectively, and we expect more of the same in the year ahead.

Although the unemployment rate stayed at 4.1 percent, that was due to a 518,000 increase in the labor force, which is welcome news. In the past year, the labor force is up 116,000 per month. Look for a decline to 3.6 percent by year end, which would be the lowest since 1969. After that, in 2019, we should get a jobless rate down to 3.2 percent, which would be the lowest since the early 1950s.

The worst part of today’s report was a 0.5 percent drop in hours worked. However, we think that was likely weather-related and will reverse in February. The civilian-employment measure of workers missing work due to weather was the second highest for any January in the past 20 years. Despite the drop in hours, total earnings, which combines the total number of hours worked and average hourly earnings, is up 4.3 percent from a year ago, suggesting plenty of growth in consumer purchasing power even before the tax cuts kick in.

In other recent news, automakers reported selling cars and light trucks at a 17.2 million annual rate in January, down 3.9 percent from December and down 1.6 percent from a year ago. Given the unusual strength of auto sales in the last few years, sales this year should continue to lag levels hit in 2016–17, as consumers shift their purchases toward other sectors.

Meanwhile, the economy keeps chugging along. It’s early, but the data we have so far suggest real GDP is growing at about a 4 percent annual rate in the first quarter of 2018. Put it all together and it looks like the Fed is more likely than ever to raise rates four times this year, not three.

Robert Stein is an economist for an asset-management firm and a former deputy assistant Treasury secretary for macroeconomic analysis.


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