Wages Get a Healthy Boost as Employers Add 200,000 Jobs in January

Roy Maurer By Roy Maurer February 2, 2018
Wages Get a Healthy Boost as Employers Add 200,000 Jobs in January

​Hiring among U.S. employers is off to a strong start in 2018 and wages are finally showing healthy momentum, according to the latest employment report from the Bureau of Labor Statistics.

U.S. employers added 200,000 new jobs in January, the unemployment rate held at 4.1 percent, and average hourly earnings for private-sector workers are up 2.9 percent year-over-year.

January marked the 88th consecutive month of job creation, bringing the most recent three-month average to 192,000 new jobs, just above the 181,000 monthly average for jobs created in 2017.

"The jobs recovery marches on," said Jed Kolko, chief economist for global job search engine Indeed. "Over the past quarter, job gains have accelerated, even though the recovery is now in year eight."

Employment growth was driven by new jobs in construction, restaurants, health care and manufacturing. "Blue-collar sectors led the charge," Kolko said. "Mining and construction once again were the fastest growing sectors. Plus, manufacturing is keeping up with overall growth at the moment, though not enough to dent the long-term trend away from manufacturing."

Construction firms added 36,000 jobs in January, with most of the increase occurring among specialty trade contractors (+26,000). Manufacturers added 15,000 jobs.

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The unemployment rate held at its lowest level since 2000 for the fourth consecutive month. It has been slowly declining since peaking at 10 percent in 2009.

Unemployment rose steeply from the previous month for Asians (2.5 percent to 3 percent) and blacks (6.8 percent to 7.7 percent). The rate ticked up for teenagers to 13.9 percent.

Jobless rates for adult men (3.9 percent), adult women (3.6 percent), Hispanics (5 percent) and whites (3.5 percent) stayed about the same.

The ranks of the unemployed rose from 6.6 million to 6.7 million, but left the overall participation rate unchanged at 62.7 percent, mostly due to new entrants and reentrants to the labor force. "That suggests age-adjusted participation is rising, with Baby Boomer retirements offset by younger people drawn into the hot job market," said Josh Wright, chief economist for recruitment software company iCIMS, based in Matawan, N.J.  

"I expect there could be a little more tightening in the labor market in terms of the unemployment rate and labor force participation rate," said Cathy Barrera, chief economist for online jobs platform ZipRecruiter. "Most of that will come from groups that haven't seen a true recovery from the recession yet, including young people, and other groups who have had a difficult time finding work post-recession, such as former inmates. These are groups employers weren't really considering when there was more slack in the labor market."

Wright sees further positive movement in long-term unemployment's decline to 1.4 million from 1.5 million. "The big caveat was that part-time work rose among those who preferred full-time work, driving up the underemployment rate for the second straight month, to 8.2 percent from 8.1 percent," he said. "Increasingly, it looks like this is part of a structural shift in the U.S. labor market toward the so-called gig economy."

The employment report also supported President Donald Trump's State of the Union claim that wages are beginning to pick up after years of stagnation. "All anyone really was looking for in the January employment report was wage growth, and for once, we got it," Wright said. But it is "a bit of a head scratcher," he added. "Many analysts expected the recent tax reform to lead to increased bonuses in January, but for more of the raises to come in February or later if at all. It's true that several states increased their minimum wage, but such increases have occurred in each of the last several Januaries, so the seasonal adjustments should have at least mitigated that."

He also pointed out that the decline in the average workweek in January meant that average weekly take-home pay actually went down. "The decline in the workweek more than offset the growth in average hourly earnings, suggesting a potential role for winter weather and seasonal adjustments."

And while wage growth has been slowly inching up, Barrera cautioned that one month's big jump does not make a trend. "I'd like to see the wage growth level we're seeing this month maintain in February," she said. "In a tightening labor market, it's important to keep in mind that employers may also entice job seekers by improving the quality of jobs, in addition to raising wages."

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