U.S. hiring picked up in January and wages rose at the fastest annual pace since the recession ended, as the economy’s steady move toward full employment extended into 2018.
Nonfarm payrolls rose 200,000 — compared with the median estimate of economists for a 180,000 increase — after an upwardly revised 160,000 advance, Labor Department figures showed Friday. The jobless rate held at 4.1 percent, matching the lowest since 2000, while average hourly earnings rose a more-than-expected 2.9 percent from a year earlier, the most since June 2009.
Treasury yields and the dollar gained, while stock futures remained lower, as the data reinforced the Fed’s outlook for three interest-rate hikes this year under incoming Chairman Jerome Powell, including one that investors expect in March. The figures may also add to the likelihood of a fourth rate increase in 2018.
The report puts the nation closer to maximum employment — one of the goals of the Federal Reserve — and sets a solid tone for hiring this year following continued gains in payrolls in 2017. That could be starting to generate a long-awaited, sustained pickup in wages and boost demand in this expansion, which may also get a lift this year from tax-cut legislation signed by President Donald Trump in December.
“The gain in wages will add to concerns that inflationary pressures are building in the economy,” said Michael Feroli, chief U.S. Economist at JPMorgan Chase & Co., who correctly projected the payrolls gain. “It solidifies expectations that the Fed will hike in March. The question is, what will they signal for hikes after that?”
The Labor Department’s figures included its annual benchmark update to the establishment survey, spanning payrolls, hours and earnings over the past five years.
Average hourly earnings rose 0.3 percent from the prior month following an upwardly revised 0.4 percent gain, the report showed. The 2.9 advance from a year earlier — which partly reflected a downward revision to the January 2017 wage figure — compared with projections for a 2.6 percent increase. December’s gain was revised upward to 2.7 percent.
Given the extent of revisions to past data, it may take some more time to determine whether wages — which have been the soft spot of an otherwise strong job market — are undergoing a more durable acceleration. During most of this expansion, businesses across the economy have largely resisted giving out more generous paychecks even as labor-market slack continued to diminish.
What Our Economists Say
The above-consensus payroll print and increase in average hourly earnings was partly tempered by a drop in the length of the workweek, which thereby weighs on aggregate income creation. However, elevated absences and curtailments due to inclement weather may have impacted the workweek, so the dip is likely to be temporary — and hence less troubling that what would otherwise be the case.
The labor market is on solid footing, potentially accelerating, and on track to drive the unemployment rate lower in the near term. Lower unemployment and mounting wage pressures will test the Fed’s conviction to maintain its scheduled trajectory for rate increases in 2018 — particularly if the dollar continues to depreciate at a rapid pace.
– Carl Riccadonna and Yelena Shulyatyeva, Bloomberg Economics