U.S. hiring accelerates; annual wage growth strongest since 2009

Non-farm payrolls increase by 200,000 in January
By Lucia Mutikani
|hrreporter.com|Last Updated: 02/05/2018
Construction Worker
Workers are seen during the construction of the LG Electronics washing machine plant in Clarksville, Tenn., Jan. 18. REUTERS/David Lawder

WASHINGTON (Reuters) — U.S. job growth surged in January and wages increased further, recording their largest annual gain in more than 8.5 years, bolstering expectations that inflation will push higher this year as the labor market hits full employment.

Non-farm payrolls jumped by 200,000 jobs last month after rising 160,000 in December, the Labor Department said on Friday.

The unemployment rate was unchanged at a 17-year low of 4.1 per cent. Average hourly earnings rose nine cents, or 0.3 per cent, in January to US$26.74, building on December's solid 0.4 per cent gain.

That boosted the year-on-year increase in average hourly earnings to 2.9 per cent, the largest rise since June 2009, from 2.7 per cent in December. Workers, however, put in fewer hours last month. The average workweek fell to 34.3 hours, the shortest in four months, from 34.5 hours in December.

The robust employment report underscored the strong momentum in the economy at the start of the year. Economists say job gains are being driven by buoyant domestic and global demand.

Given that the labour market is almost at full employment, economists saw little boost to job growth from the Trump administration's $1.5 billion tax cut package passed by the Republican-controlled U.S. Congress in December, in the biggest overhaul of the tax code in 30 years.

President Donald Trump and his fellow Republicans have cast the fiscal stimulus, which includes a reduction in the corporate income tax rate to 21 per cent from 35 per cent, as creating jobs and boosting economic growth.

According to outplacement consultancy firm Challenger, Gray & Christmas, only seven companies, including Apple, had announced plans to add roughly a combined 37,000 new jobs in response to the tax cuts as of the end of January.

Economists polled by Reuters had forecast non-farm payrolls rising by 180,000 jobs last month and the unemployment rate unchanged at 4.1 per cent. January's anticipated jobs gains were above the monthly average of 192,000 over the past three months.

The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population.

JOB GAINS SEEN SLOWING

Job growth is expected to slow this year as the labour market hits full employment. Companies are increasingly reporting difficulties finding qualified workers, which economists say will force some to significantly raise wages as they compete for scarce labour.

Wage growth last month was likely supported by increases in the minimum wage which came into effect in 18 states in January. They probably also got a lift from the tax cut. Companies like Starbucks and FedEx have said they will use some of the savings from lower taxes to boost wages for workers.

Further gains are expected in February when Walmart raises entry-level wages for hourly employees at its U.S. stores. Annual wage growth is now close to the three per cent that economists say is needed to push inflation towards the Federal Reserve's two per cent target.

Fed officials on Wednesday expressed optimism that inflation will rise toward its target this year. Policymakers, who voted to keep interest rates unchanged, described the labour market as having "continued to strengthen," and economic activity as "rising at a solid rate." U.S. financial markets are expecting a rate hike in March.

The U.S. central bank has forecast three rate increases this year. It raised borrowing costs three times in 2017.

The January household survey data incorporated new population controls. The department also released annual revisions to the payrolls data from the survey of employers and introduced new factors to adjust for seasonal fluctuations.

It said the level of employment in March of last year was 146,000 higher than it had reported, on a seasonally adjusted basis. The unemployment rate dropped seven-tenths of a percentage point in 2017 and economists expect it to hit 3.5 per cent by the end of the year.

Employment gains were widespread in January. Manufacturing payrolls increased by 15,000 last month after rising 21,000 in December. The sector is being supported by strong domestic and international demand. A weak dollar is also providing a boost to manufacturing by making U.S.-made goods more competitive on the international market.

Hiring at construction sites picked up last month despite unseasonably cold weather. Construction payrolls increased by 36,000 jobs after rising 33,000 in December. Retail employment rebounded by 15,400 jobs in January after slumping 25,600 the prior month.

Government employment increased by 4,000 jobs following two straight months of declines. There were also increases in payrolls for professional and business services, leisure and hospitality as well as health care and social assistance. 

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