In February, the economy likely added more jobs than usual and wage growth was strong.
At 8:30 am Friday, the Federal Reserve releases the February Employment Report. This is the last monthly data that it will be considering before its March 15-16 meeting. It is expected that the central bank will raise its interest rates in this meeting, which would be its first increase since 2018.
Dow Jones predicts that 440,000 new jobs will be created by economists in February. That compares to 467,000 in January. Dow Jones predicts that wages will rise 0.5% to 5.8% annually, while the unemployment rate should fall to 3.9%. This is a drop of 0.1 percentage points.
Ethan Harris from Bank of America, Head of Global Economics, stated that the labor market is becoming tighter quickly and strong wage growth will continue to be a constant. It’s going to remain a tight labor market…and we predict that wage inflation will stay close to 6% through the year. The January wage growth rate was 5.88%, year-over-year.
Full employment is the Fed’s double mandate. Price stabilization is its second mandate. While the central bank has achieved its employment goal, it will likely continue to fight rising inflation by increasing interest rates. Expect a quarter-point increase in March, followed by six additional increases over the course this year.
Harris stated, “For the Fed this just keeps them in track.”
The inflation rate is high and economists keep an eye on wage growth. It is likely to increase with recent spikes in oil prices following the invasion by Russia. Consumer price index increased 7.5% in January on a year over year basis and it will rise further in February, when it will be released.
The concern is that wage growth may become too strong to support a price- and wage spiral.
Rising wages can be a catalyst for economic growth, as they support consumers. Barclays chief U.S. economic economist Michael Gapen stated that while he anticipated households drawing funds from savings to support their consumption this quarter, rising wages might reduce savings.
He stated, “It’s not going to be from drawdown but labor market income.” The labor market should be used to generate solid income growth.
According to economists, job growth is likely from many industries. It was expected that there would be a rise in leisure and tourism.
The supply chain problems are still a problem impeding manufacturing, but they’re less severe in the car sector. “They do appear to be getting back their production schedules up,” stated Mark Zandi chief economist of Moody’s Analytics. “Construction seems more problematic. Record numbers of new homes are in construction. It seems like they can’t get any work done. According to him, the industry was affected by labor shortages and parts shortages.
Jefferies money market economist Tom Simons said that the shortage of labor continues to plague the labour market.
Supply of labor is one thing that can be a limitation. That should be reflected in high wage numbers. Simons stated that this trend will be confirmed by another decline in unemployment.
Simons also said that he was watching wage growth. Simons stated, “It is huge in terms just trying to conceptualize the consumer’s ability to keep up with inflation.” Simons said that the labor market was so tight and that there is still a lot of demand. As employers try to hire workers, it seems normal that wages will rise.
