1. "Strong hiring and low unemployment are delivering U.S. workers their best pay raises in nearly a decade."
High demand, low supply = increase in the real wage.
What happened last month? Employment increased by 250 000 - while only 188 000 was expected. Nominal wages increased by 3.1%, and unemployment remained unchanged at 3.7%.
Why did employment increase but unemployment did not fall?
An economists remarked that more people join the labour market as wages rise. Indeed, labour force participation is the highest since 2010. It is still lower than before the Great Recession. It is not clear whether decline in labour force participation is permanent.
Is the increase of unemployment just that? Not necessarily. In September hurricane Florence hit, and hiring in September was weak. So it may be that some of the jobs increase is delayed hiring from September.
Low - skilled workers seem to benefit from the strong labour market. Since 2010:
- weakly wages for high school dropouts increased 23.4%
- wage growth for college graduates was 14.4%
Ok, so are workers better off?
Nominal wages do not tell you enough. We need to compare it with the inflation rate.
Inflation this year is around 2%. So this year real wages increased by over 1%
The increase in prices (you can calculate it from data here between January 1, 2010 and January 1, 2017 was 14.2%. Adding the inflation since January 2017 we can conclude that while real wages of high-school dropouts have increased, those of college graduates fell.
Why is the labour market in such a good shape? According to Nomura Securities, it is because of fiscal stimulus: tax cuts introduced last year. Nomura expects hiring to slow down in the future.
The strong labour market leads to expectations of interest rate increases by the FED. We will talk about it in a couple of weeks.
But wage growth is slow compared to a similar period of low inflation in early 2000s and late 1960s. Reason: perhaps slow productivity growth.
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