U.S. job market growth: all work and still little pay

October 1, 2015

We have already heard enough commentators and economists explain how U.S. payrolls data will not matter much in coming months because we’re at a solid enough pace of hiring to keep the unemployment rate, already at just 5.1 percent, on a steady downward path.

If the average hiring rate of over 200,000 a month keeps up, it will generate wage inflation from skills shortages that will inevitably become more common.

Those wage rises will then inevitably boost overall inflation at a time when central bankers around the world, with only a few isolated exceptions, are panicking about extremely low price pressures despite the most aggressive episode of global interest rate cutting and money printing in history.

A simple analysis of Reuters poll data suggests we’re not about to get that burst of wage inflation just yet.

If we still don’t get it over the next few months, it could have serious implications for whether or not the U.S. Federal Reserve actually raises interest rates this year as it has signalled it intends to do, even after taking a pass in June and then earlier this month.

Average earnings probably rose by just 0.1 percent in September, according to the 10 forecasters with the best record for accuracy over the past year in Reuters polls. Of those top 10, five forecast 0.1 percent, four said 0.2 percent, and one said zero. 

Of the wider sample of 67 economists, 18 gave a forecast below the 0.2 percent median, while only five said it would be higher (four predicted 0.3 percent and one said 0.4 percent.)

US wage inflation

If we get 0.2 percent or below, wage rises on an annual basis will remain firmly under control, around 2 percent. Nothing to fear here.

wage inflation rebounds

Yet without any decisive movement up soon, the Fed faces a serious dilemma. The Fed has already made clear they don’t need to see inflation hit a dangerous rate before they start raising the federal funds rate from 0-0.25 percent. But they need to have some measure of confidence inflation is going to pick up somewhere not far in the future and be able to explain that to an increasingly skeptical audience.

With global inflation rates depressed – not just because of commodities but because of clear slowing global demand, trade and manufacturing activity – it is becoming increasingly doubtful it will soon decide to pull the trigger.

— Krishna Eluri contributed to this post

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/