More on the Tightening Labor Market

April 30th, 2015 8:12 pm | by John Jansen |

Via the FT:

US labour market starts to tighten

 

Wage growth, one of the key missing pieces of the US recovery puzzle, picked up sharply earlier this year in a sign of a tightening labour market.

Private sector pay rose 2.8 per cent in the first quarter — compared with 2.2 per cent in the three months to the end of December — the quickest upward pace since 2008.

Separate data showed applications for jobless benefits dropped to their lowest level in 15 years last week, suggesting that the job market had regained momentum following the winter freeze.

The figures were published a day after the Federal Reserve said there had been a slowdown in the economy in the first three months of the year, while insisting that the setback was in part due to “transitory” factors such as bad weather and a port strike.

The US central bank struck a cautious note on hiring, saying that job gains had “moderated” and that slack in the labour market was little changed, rather than diminishing as it had previously stated. Officials will closely track employment data to see whether the slowdown is part of a familiar pattern, in which weakness earlier in the year gives way to stronger data in the summer.

There has been anecdotal evidence of better pay, including well-publicised rises by companies including Walmart, Target and McDonald’s, and surveys suggest that companies are struggling to attract enough skilled labour. Still, official pay data have remained muted — even at a time when job openings are at their highest in 14 years.

Stu Hoffman, chief economist at PNC bank, said that stronger compensation growth, coupled with the energy price plunge, would lift household spending this year and next.

He said: “Wage growth through much of the recovery from the Great Recession has been slow, as high unemployment has limited the bargaining position of employees. But, as job growth has accelerated over the past year and the labour market has tightened, workers have gained more power relative to firms and compensation growth has picked up.”

As job growth has accelerated over the past year and the labour market has tightened, workers have gained more power relative to firms and compensation growth has picked up– Stu Hoffman, chief economist, PNC

The Employment Cost Index data from the Bureau of Labor Statistics are carefully tracked by the Fed as a gauge of underlying pay pressures. The figures showed that overall compensation — which includes benefits — rose 2.6 per cent in the three months to the end of March, compared with the same period a year earlier.

That was up from an annual 2.2 per cent in the quarter ending December. Compensation in the January-March period rose 0.7 per cent from the previous quarter, ahead of Wall Street expectations.

Still, the wage figures remain shy of the 3-3.5 per cent wage growth that senior Fed officials have flagged as healthy. The data showed marked disparities in different metropolitan areas, underlining differing fortunes across the country.

While the Boston urban area saw wage growth of 3.9 per cent in the March period, the region encompassing Washington, Baltimore and northern Virginia saw private sector wage growth of just 0.7 per cent.

The Detroit, Warren and Flint area had annual wage growth of a tiny 0.2 per cent.

The pickup in pay growth was slower when workers incentivised through commissions were excluded, said Jim O’Sullivan of High Frequency Economics. By that measure, pay was up 2.1 per cent in March against 2 per cent in December.

However, Mr O’Sullivan pointed to the first-time filings for unemployment insurance, which dropped by 34,000 to 262,000 in the week ended April 25, as a sign of a strong jobs market outlook.

“If claims are telling the right story, they [the Fed] are still going to tighten this year,” he said. “If unemployment continues falling it is just a matter of time.”

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