I frequently comment on the monthly employment report that was just released this past Friday. Of all the monthly reports released, this one tends to have the most impact on financial markets.
Typically most people look at the number of jobs added for the month and the unemployment rate. In addition average hourly wages are also reported.
For this past month, the change in hourly wages was significant. The change from September to October was .4%, which is quite large for one month.
A better picture is gained, however, by looking at the year over year change in wages, since the monthly figures can bounce around some. For the month of October the year over year change was 2.8%, which is the strongest reading since 2009.
In recent years wage growth was showing average annual increases of about 2%. In recent months the increase was showing improvement, rising to around 2.5%. Now we have the best reading in seven years.
The actual number of jobs created for the month was 161,000, which was slightly less than the average of recent months. However, with the recent hurricane on the East Coast, that likely lowered the employment count somewhat. In addition the unemployment rate declined to 4.9% from 5.0%. The unemployment rate has been hovering around this level for a number of months.
It should be noted that this column is being written before the election. With a new administration coming on board, and a potential change in the make up of Congress, some may wonder, if the comments I am making before the election are relevant.
It should be noted that the new President will not take office until January. In addition any changes in legislation or policy will likely take many months to be implemented. Therefore, the trends currently in place will likely continue for quite some time, irrespective of which way the election goes.
What is likely to occur is that the trend of rising wage gains will continue for some time. This would especially be the case, if inflation starts to increase.
Of course, if inflation is at 2%, and you receive a 2% increase in pay, that is really the same, as getting a 3% raise, when inflation is also at 3%. In either case someone is just breaking even.
For now average wage gains are somewhat greater than the inflation rate, so workers are finally doing better. Most likely this trend will stay in place for some time, given the relatively low unemployment rate.
With regards to wage gains these are strictly just averages. If someone is in an industry where it is hard to attract new workers, that person will likely see faster wage growth versus someone, who is in an industry with an abundance of workers. Likewise younger people should expect greater salary increases versus someone more established in their career.
For businesses higher wages can have an impact on profitability, if they are not accompanied by productivity improvements. In recent years there has been little in the way of productivity improvement. For companies that sell products to the consumer, higher wage growth can be a positive, as consumers will have more money to spend.
For now the environment has shifted where most workers are finally starting to do somewhat better after a number of years of barely keeping up with inflation. This trend is likely to stay in place for some time, barring any unexpected global developments.