The Building Tradesman Newspaper

Friday, January 24, 2020

Economy solid as new year starts; lackluster wage hikes still concern

By The Building Tradesman

Many of the major economic markers have been calculated for 2019, and with the exception of wage growth, the results show an all-around healthy U.S. economy.

So said the labor-backed Economic Policy Institute (EPI) on Jan 10, reacting to that day's release of the U.S. Bureau of Labor Statistics employment and wage numbers for December. The numbers showed that December's payroll employment grew by 145,000 jobs, and the nation's jobless rate came in at 3.5 percent, a record-low number that was steady compared to November. 

But wage growth came in at 2.9 percent - the lowest it has been in 18 months after hitting 3.4 percent in September, an historically unimpressive peak over the past decade. Factor in the average 1.7 percent inflation rate for goods and services over the past decade, and real wages for workers have not improved much. In fact, real median worker wages only rose 6 percent between 1979 and 2019. 

"Today’s report gives us a chance to look back on the whole of 2019 - and look toward the year ahead," said EPI senior economist Elise Gould. "Average monthly job creation has held remarkably steady for the past nine years, but it did soften in the last year, from 223,000 in 2018 to 176,000 in 2019. The one-time boost of the fiscal stimulus from 2018 has worn off and may have contributed to the slightly weaker job growth in 2019.

"At the current pace of growth, however, the labor market continues to not only absorb population growth, but also chip away at the slack remaining in the labor market—namely workers who continue to be sidelined and who I expect will enter or re-enter the labor market as opportunities for jobs and better pay expand."

Here are some other nuggets from the report:

*The U.S. jobless rate is very low - it ended the year at 3.5 percent, the lowest since 1969.

*Wage growth "has slowed for much of the year," EPI said, "providing further evidence that we are not yet at genuine full employment. As would-be workers become scarcer, we would expect employers to have to work harder to attract and retain the workers they want. Wage growth is the most important indicator to watch in 2020."

*Overall, the number of jobs still being created with the unemployment rate at near-historic lows along with slower than expected wage growth "undermines the conventional wisdom that the economy has reached or passed full employment," Gould said. "Looking ahead, if the Federal Reserve stays the course and there are no unexpected policy decisions elsewhere, I expect the labor market to continue growing stronger in 2020."

Michael Pearce, senior U.S. economist at Capital Economics, said December's job growth was lower than expected, but "solid." 

“After a strong 256,000 gain in payrolls in November, boosted by the return of 40,000 GM workers, some slowdown in the pace of job gains in December was inevitable,” said  Pearce.

And yet, “It is astonishing that a ten-year expansion and a 50-year low 3.5 percent unemployment rate is not generating more wage pressure,” said chief economist Chris Low of FHH Financial.