Wall Street rebounds after federal jobs report shows continued wage stagnation

Daniel Fowler
July 8, 2018

Total nonfarm payroll employment increased by 213,000 in June, and the unemployment rate rose to 4.0 percent, the U.S. Bureau of Labor Statistics reported today.

Wages were being carefully watched by economists for signs of inflationary pressures building in the economy, with average hourly earnings forecast to have risen 0.3% over last month in June and 2.8% over the same month previous year.

Still, average hourly pay rose just 2.7 per cent in June from 12 months earlier, meaning that after adjusting for inflation, wages remain almost flat.

But in fact more people entering the workforce is a sign of optimism that jobs are available in an economy now entering its 10th year of expansion. That kept the annual increase in average hourly earnings at 2.7 percent.

New entrants, including blue-collar workers and teenagers, shouldn't have much trouble finding a job.

While the sunny outlook led Federal Reserve officials last month to boost the number of interest-rate hikes they expect in 2018, an intensifying trade war threatens to sap economic momentum, and a shrinking pool of qualified workers may slow the pace of employment gains.

Moreover, the number of people looking for work increased by 601,000 in June which happens to be the largest since February. Economists say the effects could include companies curtailing both hiring and investment, which would have a cooling effect on the jobs figures in coming months. The rise in the unemployment rate was also "healthy" because it reflected an uptick in the labor participation rate (to 62.9 percent from 62.7 percent), raising hopes that the labor force can overcome some of its structural headwinds.

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Canada's tight jobs market is beginning to bring more workers into the labour force, a trend that if sustained may moderate a recent pick up in wage pressures.

President Donald Trump and Republicans are running on a growing economy going into the 2018 midterm elections, especially since Trump signed the Republican tax reform plan into law at the end of 2017.

Minutes of the Fed's June 12-13 policy meeting published on Thursday were upbeat on the labor market.

"Overall, this "not too hot, not too cold" report supports our call for four Fed rate hikes in total this year", Gregory Daco, head of United States macroeconomics at Oxford Economics in NY, said in a note.

At the same time, retail lost 22,000 jobs, partly because of the nationwide closing of Toys R Us stores, according to Gus Faucher, PNC's chief economist.

With a record 6.7 million unfilled jobs in April, economists are optimistic that wage growth will accelerate later this year.

The Trump administration has also applied tariffs on steel and aluminum from allies like Canada and Mexico and has threatened to abandon the North American Free Trade Agreement.

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