U.S. Adds 257,000 Jobs in January, Wages Still a Concern

By Politics FOXBusiness

The U.S. added 257,000 jobs in January, another solid month of job creation even as sluggish wage growth remains a concern.

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The unemployment rate was 5.7% in January, according to figures released Friday by the U.S. Labor Department, slightly higher than the December rate as more Americans re-entered the work force.

Economists had predicted 234,000 new jobs last month and that the unemployment rate would hold steady at 5.6%.

The job gains marked the 12th consecutive month in which the U.S. gained more than 200,000 jobs, and, in more good news, the numbers for November and December were revised upwards by 147,000 jobs.

But solid job growth hasn’t translated into bigger paychecks for U.S. workers, a division that has increasingly vexed both consumers and economists. Wages rebounded a bit in January but the trajectory of American paychecks during the recovery from the 2008 financial crisis has been uneven at best.

“Wage growth remains a major disappointment but is at least showing signs of picking up,” said Chris Williamson, chief economist at research firm Markit.

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Average hourly earnings for all employees on private nonfarm payrolls rose by 12 cents, or 0.5%, to $24.75 in January, a notable turnaround from December, when wages fell by 5 cents. Over the past 12 months, average hourly earnings have risen by 2.2%, well below the 3%-3.5% growth range economists say is healthy.

The labor force participation rate rose by 0.2% in January to 62.9%.

While labor markets appear to be healing based on the steady decline in the headline unemployment rate, other labor market indicators suggest a slower recovery for many U.S. workers.

For instance, average hourly wages have been essentially stagnant for months, a factor that has kept inflation running well below the Federal Reserve’s target rate of 2%. Wages have emerged as perhaps the key indicator being watched by economists to determine when the Fed might start raising interest rates.

During the past year, average hourly earnings growth has hovered well below the 3%-3.5% rate the Fed views as necessary to keep inflation at its desired 2% target rate.

One of the reasons cited for the lack of wage growth despite the tightening job market is the degree of so-called ‘labor market slack’ that emerged in the wake of the 2008 financial crisis, which threw an estimated 8.8 million Americans out of work.

While the U.S. has numerically regained all of those jobs, the quality and description of those positions has in many cases changed dramatically. Many full-time employees who lost their jobs during the financial crisis have indeed returned to work but at part-time or temporary jobs that pay lower salaries, offer less hours and don’t provide benefits.

The Fed has been studying labor market trends for months in an effort to determine the proper timing for raising interest rates, a move that would push borrowing costs higher and could potentially cause a drag on the economic recovery.

When rates move higher it will be more expensive for consumers and businesses to borrow money. The higher costs for borrowing could cut back on consumer spending and business expansion, which could negatively impact labor markets.

The Fed has said it won’t start raising interest rates until it reaches its dual mandate of full employment and price stability. The central bank has defined the former as an unemployment rate in a range of 5.2%-5.6% and the latter as an annual inflation range of 1.7%-2%.

The unemployment rate has now dropped into that desired range, but the inflation target is trickier. Inflation isn’t likely to move higher until wages go up significantly, and that may not happen until late in 2015, according to most economists.

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