FRIDAY SAW THE RELEASE OF THE OCTOBER JOBS REPORT. WHAT WAS IN IT?
Overall, Friday’s jobs report contained really positive news. According to the Labor Department, the economy added 250,000 jobs in October. That did not change the unemployment rate, which held steady at 3.7%, tied with the lowest rate December 1969.
But most importantly, we saw strong wage growth and labor market participation figures, which tell us that more Americans are finally seeing better numbers on their paychecks. Wages increased 3.1% from a year earlier, the best year-over-year gain for average hourly earnings since 2009.
And the percentage of prime-working-age adults — those between 25 and 54 — rose to 79.7 percent, up from 79.3 percent in September. However, there is still room for growth here, as that figure was 80.3 percent in January 2007 and 81.9 percent in April 2000.
WHY ARE WAGES RISING?
This is primarily a story about the labor market. With relatively few unemployed Americans looking for work, to secure access to qualified employees, companies are increasingly having to raise wages to attract workers away from other employers. That has been the case the past few years for higher skilled jobs such as engineers or technology workers, but now we are seeing the same thing play out for lower-wage jobs
HOW DOES THIS WAGE GROWTH COMPARE TO PRE-RECESSION LEVELS?
While it is undoubtedly good news compared to the past decade, in historical terms wage growth remains soft given the strength of the economy and the tight labor market. In the early 2000s and late 1960s, wages were growing at 4% or better year over year. However, part of this may be tied to worker productivity, which was growing faster during those periods, and is often a factor in wage growth rates.
CAN WE EXPECT WAGE GROWTH TO CONTINUE?
Based on what we know about the tight labor market and the fundamentals of the economy, it seems likely we will continue to see wages grow. What we do not know is if growth will continue to be significantly higher than inflation in order for Americans to see real gains in purchasing power.
For example, if workers who have sat on the sidelines continue to look for jobs and push labor market participation higher, wage growth could slow. If worker productivity increases, wage growth could pick up. We will have to wait and see.
WHAT ONGOING EFFECTS DO RISING WAGES HAVE ON THE ECONOMY?
Higher wage growth will have a ripple effect across the economy. These job and wage numbers mean we are likely to see consumers continue to spend money. U.S. consumer spending rose for a seventh straight month in September.
That is good news for the economy as a whole. However, wage growth could dampen investor optimism and impact the markets. Higher wages mean increased labor costs for companies and will certainly revive concerns the Fed will continue to hike interest rates, making borrowing more expensive for companies and individuals alike.
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Mellody Hobson is President of Ariel Investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News.
