UPDATE: Are workers really getting a raise? Wages are focus of upcoming U.S. jobs report
By Jeffry Bartash, MarketWatch
U.S. may have added 220,000 new jobs in February
A long economic expansion is finally delivering bigger pay gains to American workers, but that's not being taken as good news on Wall Street. Investors worry an ultra-tighter U.S. labor market will boost wages and inflation, hurting the value of stocks and bonds.
Here's what to watch in Friday's employment report for February.
Worker pay and inflation
The number getting the most attention in the monthly employment report these days is wage growth. Hourly pay rose in January at a yearly pace of 2.9%, marking the fastest 12-month increase since 2009.
The increase sent bond yields surging and triggered a selloff in the U.S. stock market that ended a prolonged rally.
The surge in pay in the first month of the year may have resulted in part from seasonal quirks that could unwind in February, helping to calm investors. Wells Fargo senior economist Sam Bullard said he expects a "more tempered gain" in hourly pay.
Yet if hiring keeps up and the unemployment rate continues to fall as expected, higher wages are inevitable.
Jobs, jobs, jobs
The number of new jobs created in February is expected to total around 220,000 after a 200,000 increase in January. A warmer month than usual may have boosted "outdoor" industries after harsh weather at the start of the new year hurt them.
Such strong job growth probably isn't sustainable with the unemployment rate so low, however. In both 2017 and 2016, job gains averaged less than 190,000 a month, down from a post-recession peak of 250,000 in 2014.
As with wages, investors aren't so eager to see employment numbers regularly topping 200,000 a month. They'll view it as a signal of either higher inflation or a sign that businesses still can't boost growth through higher productivity.
"Looking ahead, we will view sold growth in employment less favorably," economists at Barclays wrote.
Low layoffs and unemployment
The gradual acceleration in worker pay over the past few years has stemmed from a falling unemployment rate and dwindling pool of skilled workers for hire. Companies have to compete harder to recruit or retain employees.
Soon the unemployment rate is likely to dip below 4% for the first time in 17 years and it could head even lower. That will keep investors -- and the Federal Reserve -- on edge.
Why? Economic theory suggests such a low unemployment rate should lead to higher inflation. But it hasn't really happened. Hourly pay typically rises as much as 4% a year when the U.S. unemployment rate is as low as it is now.
A number of factors are likely keeping wages down (http://www.marketwatch.com/story/six-reasons-why-most-americans-arent-getting-big-pay-raises-2017-08-22), and even in a tighter labor market, many firms are unwilling to pay a great deal more for less skilled workers who might require additional training.
-Jeffry Bartash; 415-439-6400; AskNewswires@dowjones.com
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03-09-18 0507ETCopyright (c) 2018 Dow Jones & Company, Inc.