“It’s certainly trending the right way, but it’s surely still unexciting — even unacceptable — wage growth at this point,” said Dan North, chief economist at Euler Hermes North America.
Friday’s numbers are preliminary and will be revised at least twice in coming months. They are also subject to large margins of error — so consider the numbers, especially the month-to-month changes, with caution.
The Storm Effect
The Bureau of Labor Statistics initially estimated that the United States lost 33,000 jobs in September, the first net decline in payrolls in seven years. (Those figures were revised Friday morning.) But those figures were heavily skewed by the hurricanes, which kept some 1.5 million workers off the job, many of them in the leisure and hospitality sector. Most economists expected a strong recovery in October, as displaced employees returned to work and as the rebuilding effort generated even more demand for labor.
As a result, it’s probably best not to pay too much attention to either September or October’s figures, at least not on their own. Rather, most economists recommend focusing on the broader trend. Before the hurricanes, employers were hiring at the pace of about 170,000 jobs per month this year. That’s down from an average of about 190,000 in 2016 and nearly 230,000 in 2015, but it still represents a solid pace of growth, and should be enough to keep pushing the unemployment rate down and drawing new people into the work force.
Waiting on Wages
Average earnings rose 12 cents an hour in September, according to the government’s preliminary estimate. That jump, one of the biggest one-month gains on record, may have been at least partly a result of the hurricanes — with many low-wage restaurant and hospitality workers pushed out of the work force, at least temporarily, the average wage was nudged higher.
Over the longer run, wages have been rising faster than inflation, but slowly by historical standards. That wasn’t a surprise early in the recovery, when there were millions of unemployed workers clamoring for jobs — and giving employers little incentive to raise pay. But the unemployment rate hit 4.2 percent in September, lower than it ever got during the previous economic expansion. Standard economic models suggest that should lead to faster wage growth.
“We’ve been lamenting for a year about how we’ve had this great, really low unemployment rate and yet the wage growth is not coming up to what we’d expect historically at these levels,” said Catherine Barrera, chief economist at ZipRecruiter, an online job site.
There are reasons for optimism. Wage growth has been picking up in recent months, albeit gradually. The Employment Cost Index, a more sophisticated measure of compensation that considers benefits as well as cash pay, was up 2.5 percent in the third quarter from a year earlier, its fastest pace in two and a half years.
The Labor Force
The September report may have been disappointing when it came to job growth, but another key measure of labor market health was much more encouraging: The unemployment rate fell to 4.2 percent, the lowest it has been since 2001. Even better, the labor force grew, a sign that strong hiring and faster wage growth have been tempting people back into the job market.
“The labor force has been growing significantly,” Mr. North said. “You’re continuously seeing people coming in off the sidelines.”
The rebound in the labor force is good news for the economy, but it could be one of the factors keeping wage growth in check. A bigger pool of available workers, after all, means companies have less incentive to raise pay.
Ms. Barrera said she was paying particular attention to the participation rate of people in their teens and early 20s, which hit an eight-year high in September. If employers are hiring inexperienced young people, Ms. Barrera said, that suggests they will eventually be forced to start raising wages to attract employees.
The Economic Context
Not only is the job market fundamentally healthy, there’s no sign that the broader recovery is losing steam. If anything, it seems to be gaining strength.
Last week, the government reported that gross domestic product rose at a 3 percent annual rate in the third quarter, the second straight quarter of solid growth. Consumer spending, the dominant driver of economic growth in recent years, has stayed strong. But consumers are no longer alone in driving the economy forward. Stronger global growth has led to higher demand for American goods and services in recent months, aiding the manufacturing sector and boosting exports.
“It’s finally feeling like the economy is starting to fire on multiple cylinders rather than relying solely on consumers,” said Brett Ryan, an economist at Deutsche Bank in New York.
The strong economic data is part of what will most likely give the Federal Reserve the confidence to raise interest rates at its December meeting. Even a weak jobs report, Mr. Ryan said, was unlikely to lead the Fed to hold off on a rate increase.