US Wage Growth and a Strengthening Economy
Breaking down the latest
Hakim Khan, London 06.05.19
LSE SE Business and Finance Guild, London School of Economics
The US wage growth rate is at its highest since 2009 with an annual rate of 3.1% in October (BBC News, 2018). The total nonfarm payroll employment also increased by 250,0000 in October in sectors such as healthcare and construction, though little change in the employment in financial activities and government (Bls.gov, 2018). Looking at the chart above from ‘Financial Times’ obtained from the US bureau of Labour Statistics, we can see a trending increase in the US wage growth since 2010 and so reaching its highest levels since 2009.
Though, despite this increase in jobs in the US, the US unemployment rate still remained at 3.7% this October (still at a multi-decade low however), with the number of unemployed persons remained little changed at 6.1 million (Bls.gov, 2018). Plus the number of persons employed part-time for economic reasons or in other words those who are in part-time employment but would prefer full-time employment remained essentially unchanged at 4.6 million (Bls.gov, 2018) and so there the US labour market may not be improving as much as it seems.
As for the President, Trump was celebrating these figures on Twitter, saying for instance: “Wow! The US added 250,000 Jobs in October - and this was despite the hurricanes,” urging his followers to “Vote Republican!” (Fleming, Politi and Badkar, 2018) Hurricane Michael made landfall in the Florida Panhandle on October 10, 2018 though this had no clear effect on the national unemployment estimates for October(Bls.gov, 2018). These are “amazing figures” for on average, the US economy is adding 218,000 jobs a month (over the last three months), these are much above the rate needed to keep up with population growth (BBC News, 2018) and so show that this rate of growth should lead to higher individual economic standards for US citizens.
However, the top Senate Democrat (Chuck Schumer) mentioned that the latest numbers “may look good” though should still be considered alongside other economic policies as he said “when the average family sees their health care costs go up because of the Republican actions, these numbers will mean little.” (BBC News, 2018). Again the economy is strengthening according to the figures, but this doesn’t take into account the very high inequality in the US, and Mr Trump’s tax cuts were claimed by Democrats to have been skewed towards the wealthy ignoring the soaring healthcare and prescription drug costs (Fleming, Politi and Badkar, 2018) that will likely negatively impact the average family in the future.
These potential improvements could also hurt the economy in the future as according to Chuck Schumer “we’ll pay a price down the road,” for example, with the US trade deficit reaching $53bn in September which is 10% higher just in the first three quarters of the year and so demonstrating Trumps potentially short-term view ignoring the long-term consequences on the economy and its future as well as widening the trade gap going against his actual goal of shrinking it (Fleming, Politi and Badkar, 2018).
Another potential harmful factor would be that due to these figures, the Federal Reserve believes that the US economy is now strong enough to handle another interest rate rise in order to keep inflation under control, though Trump is clearly against this as he thinks that “ interest rates are being raised too quickly,” (BBC News, 2018) which could of course lead to reductions in say investment that could lead to a negative swing in the economy or even higher volatility such as that recently seen in the stock market
Overall, the US economy seems to be steadily strengthening with higher wage growth and a clear improvement in the unemployment rate as the number of unemployed persons declined by 0.4 percentage point and 449,000, respectively (Bls.gov, 2018). There are potential negatives, but for now at least wage growth seems strong and unemployment very low with the labour force participation rate also rising 0.2 percentage points telling us that more people are being pulled into the job market and off the sidelines (Fleming, Politi and Badkar, 2018), thus indicating a promising further boom for the US economy.
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