The Corner

There’s No End in Sight for Job and Wage Growth This Year

The pace of improvement in the labor market is clearly picking up.

Non-farm payrolls added 257,000 workers in January, and were revised to reflect substantial increases from their previously reported levels for November and December, with all the upward revisions coming from the private sector. Payrolls have now added at least 200,000 new names for eleven months in a row, including three gains north of 300,000, and one over 400,000 (November).  The growing strength of job creation was reinforced by civilian employment, an alternative measure of jobs that includes small business start-ups, which increased by 759,000 in January.

Despite faster job creation, the unemployment rate ticked up slightly, from 5.6 percent in December to 5.7 percent in January. But that increase was due to the fact that the labor force rose by more than 1 million in the same period, resulting in upticks in the labor force participation rate and the employment-to-population rate, which rose to 59.3 percent. Though that remains low by historical standards, it still means that a greater portion of the working-age population is employed now than at any time since 2009.

The best news in today’s report was that average hourly earnings — not counting fringe benefits like health care or tips, irregular bonuses, or commissions — increased ½ a percent in January, and are up 2.2 percent from a year ago. Combined with a 3.3 percent increase in the number of hours worked in the past year, total cash earnings are up 5.6 percent from a year ago, which means consumer purchasing power is accelerating upward.

Faster job growth and growing consumer purchasing power support our view that the Federal Reserve remains on track to start raising rates when it meets in June. The share of voluntary job leavers (or “quitters”) among the unemployed rose to 9.5 percent in January, the highest it’s been since 2008. In the past, Fed Chair Janet Yellen has said a higher quit-rate is a sign of strength in the labor market.

Over the last year, nonfarm payrolls have increased by 267,000 people per month, while civilian employment is up 250,000 per month. The labor market is gathering strength relative to the current business cycle and the expansion of the previous decade, but still suffers from bad policies — such as easy access to disability benefits and overly generous student aid — that are holding it back from improving even faster.  Despite those policies — and little sign that they’ll be lifted anytime soon — we continue to expect even more job growth, less unemployment, and faster wage growth in the year ahead.

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

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