The Economy is on Fire

The trend continues – wages advance and the labor markets tighten in the May 2018 non-farm payrolls report. Wage growth is now coming in at 2.7%, and the headline unemployment number hits 3.8%, which is beyond full employment. Labor Force Participation Rate didn’t budge in either direction. We managed to add over 200,000 jobs this month, which is remarkable given we’re in the 92nd consecutive month of expansion.

Here’s the WSJ on wage growth

A tighter labor market should also produce better wage growth, but gains have remained in check, thought they improved somewhat last month.

Average hourly earnings for all private-sector workers increased 8 cents last month to $26.92. The 2.7% annual again is small compared to prerecesssion readings. Wages haven’t increased at better than a 3% rate from a year earlier since the recession ended in 2009. The last time unemployment was near current levels nonsupervisor wages rose 4.3% from a year earlier. The Labor Department only began tracking wages for all private-sector workers in 2006.

Still, the historically low unemployment rate and modest wage increases should keep Federal Reserve policymakers in line to raise the central bank’s benchmark interest rate at a meeting later this month. Consumer inflation has strengthened in recent months to reach the Fed’s 2% annual target, another factor likely keeping the central bank in line to gradually lift rates further in an effort to make sure the economy doesn’t overheat.

re: 2.7% wage growth: It’s not tepid or weak. It’s perfect. Because it reflects the reality that Boomers at the top end of the salary curve are being replaced by Gen Yers who come into the labor force at a more entry-level salary. Wage growth in the aggregate understates the reality. If you were to look at wage growth on a worker by worker basis you would see a lot more going on in this era.

The economy is on fire.

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