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  Dr. Sohn's Commentary

Payroll Employment for January

February 02, 2018

The economy added 200,000 jobs in January exceeding expectations. The employment gains were widespread throughout the industries. The November and December numbers were revised down by 24,000.  The unemployment rate stayed at 4.1 percent. Wage gains rose at a good pace of 0.3 percent for the month amounting to 2.9 percent from a year ago.


The New Year started with a bang in the job market. The outsized increase in employment is somewhat surprising. The January pace exceeds the monthly average rate of 181,000 new jobs last year. This is despite the fact that skilled labor shortages are acute and businesses rank labor shortages as their top concern. Business optimism on the economy emanating in part from the recent tax package will continue to be tailwind for the economy.


What is not surprising, however, is the accelerating wage gains. The 2.9 percent increase from a year ago is the fastest in 8 years. The outgoing Chair Yellen may have finally met her goal of hitting 2 percent inflation target. It is highly likely that wages will continue to rise at a healthy pace. Aside from the pressure emanating from the tight labor market, minimum wages are rising at 18 states. American companies from Walmart to Wells Fargo have announced wage increases for some of their workers. It is also good that high paying construction and manufacturing jobs have shown positive trends in recent months. Manufacturing is benefitting from stronger economic activities overseas and a weaker dollar.


Rarely, businesses feel this positive about the economy. SMEs are more comfortable about the economic outlook and willing to hire people if they can find them. In response to the tax cut, better demand and relatively easy credit conditions, SME hiring has been a source of employment strengths and layoffs are slowing.


However, not everything is rosy on the employment front. Average Work Week has shrunk. U6 unemployment rate inched up to 8.2 percent from 8.1 percent. Part-time employment for economic reasons has increased by 74,000.


Overall, the better job and wage numbers have given the FOMC reasons to march ahead with the planned hikes in the interest rate and the balance-sheet restructuring. The central bank believes that the economy is on a solid ground justifying tighter policy. Four interest rate hikes in 2018, instead of three, is a good possibility.



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