The monthly jobs report was released Friday. How did it look?
We had very strong job growth in February, Tom. Last month, the U.S. economy added 313,000 new positions, the largest monthly tally since July of last year, and one of the five best totals in the past 5 years.
What is driving companies to hire?
A number of factors have contributed to strong hiring. First, American companies are in great shape. The recent deregulation and tax cuts coming out of Washington have allowed more companies to expand their workforce with the savings they have seen from these policies.
Strong consumption on the part of American families has also been good news for companies, allowing them to grow. Friday’s report showed two sectors in particular are benefiting from increasing consumer confidence: construction and retail.
As people seek to build and buy homes, and continue to shop, employers have had to hire people. Construction firms did so in spades, to the tune of 61,000 jobs last month, the highest number in 11 years for that industry.
What did wage growth look like in this last report?
Average hourly earnings for private sector workers rose 4 cents last month to $26.75. Year over year wage growth was 2.6% compared to last February. While this was slightly lower than January’s rate of 2.8%, the cause of this slower wage growth is actually a good sign, Tom. We are not seeing wages rise more rapidly or the unemployment rate fall due to increased workforce participation.
Around 800,000 Americans rejoined the labor force in February, according to Friday’s report, with most of these workers jumping straight into new positions. This represents the largest one-month increase in the labor pool since 1983. This tells us that hundreds of thousands of Americans who were marginalized and had stopped looking for jobs in the wake of the Great Recession are benefiting from the strong economy. This is great news for everyone.
How does higher labor force participation benefit us if it depresses wage growth?
First, it is great that people wanting a job to be able to get one. But there are other reasons this news is welcome, Tom. When wage growth and inflation rise too quickly, the Federal Reserve is more likely to raise interest rates to prevent the economy from overheating, which makes borrowing money more expensive for companies and individuals alike.
Now, as more people are returning to the job market, there is hope that output and income for the U.S. can continue to rise without wage and inflation pressures pushing the Fed to try to rein in economic growth. These prospects led investors to push the Dow Jones Industrial Average up over 400 points on Friday.
Will we see wages pick up any time soon?
It is important to point out that wages in certain sectors are growing faster than others. While we have not seen incredible wage growth in hospitality, in the construction sector and some parts of the transportation sector, wages are growing fast. Additionally, with labor force participation hitting 63% for the first time since 2013, the baby boomer generation retiring, and state and local governments raising the minimum wage, I do think we will continue to see steady wage growth continue.
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