U.S. wage growth jumps in August

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The monthly payrolls report for August released by the U.S. Department of Labor last Friday showed that the pace of hiring picked up the pace in August. Furthermore, the average earnings also grew strongly over the month while the official unemployment rate held steady.

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The U.S. unemployment rate was seen steady at 3.9% in August, unchanged from the previous month. Economists polled forecast the unemployment rate to ease to 3.8%.

U.S Unemployment rate
U.S Unemployment rate: 3.9%, source: Tradingeconomics.com

The U.S. economy added 201,000 jobs during August marking a strong pick up after a rather weak report in July. August payrolls data also beat estimates of 192,000 new jobs for the month.

With the increase in August payrolls report, the data indicated that the U.S. employers added to the payrolls which have been increasing for 95 consecutive months. This marked the longest continuous job expansion on record so far.

There were revisions to the previous month data. The payrolls report for July and June showed a revision to 147,000 and 208,000 net revised figures. The average number of jobs added during the three months ending August was seen at 185,000.

The average pace of payrolls outpaced the 2017 yearly average of 182,000. The average pace of payrolls indicates the minimum number required for the expansion in the job sector to continue.

The biggest surprise of the August payrolls report was, of course, the average hourly earnings. Data showed that average hourly earnings rose sharply with the strong labor market seen pressuring employers to offer higher wages. This, in turn, has an effect on the overall cost of living and spending which pushes inflation higher.

Data from the U.S. Labor Department showed that earnings rose ten cents to $27.16 in August. This was a 0.4% increase compared from July. On an annual basis, the average wages grew at a pace of 2.9% in August.

unemployment

Wage growth is yet to hit the 3% threshold since early 2008 just before the start of the recession.

The labor force participation rate was seen falling by 0.2 percentage points to 62.7% in August. The participation rate was, however, higher from 2015’s rate of 62.3% which marked a low.

Another measure of the jobs report which looks at the unemployment and underemployment levels which include Americans working part-time jobs and discouraged to look for work fell to 7.4% in August from July. In July, the underemployment rate was at 7.5%.

Within the businesses, professional and business services sectors grew the strongest. Healthcare, trade, and transportation increased. In the manufacturing sector, employment fell. Government jobs, however, declined 3,000 during the month.

The increase in the payrolls in the transportation sector comes amid the ISM’s manufacturing sector which indicated a backlog of orders due to a shortage of labor in the transportation sector. Employment in the transportation services is expected to rise in the coming months.

The latest jobs market data gave fresh signals that the U.S. economy continues to enjoy a strong period of growth. Various factors include the boost from the tax cuts that went into effect in January this year and higher consumer confidence.

Optimism among consumers remains at an all-time high. Factory activity was seen rising at the strongest pace in nearly fourteen years. Corporate profits and capital expenditure were also seen rising.

The payrolls report for August comes just weeks ahead of the next FOMC meeting. Interest rates set to rise by 25 basis points at this month’s meeting. Investors are also bracing up for the fact that the Fed could hike one more time in December this year.

The positive stretch of data also stoked confidence that the U.S. economy was averaging around 3.2% annual GDP growth. Although this is still below the official target of 4.0%, the data indicated that the economy continues to rise despite the trade wars.

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