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Hiring surge has yet to spark wage growth

The United States added 211,000 jobs in April, rebounding as expected from a lackluster weather-jinxed March, but although quite a few more people will start getting paychecks, those who have been working aren’t seeing very much income growth from the strengthening economy.

The United States added 211,000 jobs in April, rebounding as expected from a lackluster weather-jinxed March, but although quite a few more people will start getting paychecks, those who have been working aren’t seeing very much income growth from the strengthening economy.

The Labor Department’s Bureau of Labor Statistics said average hourly earnings for all employees on private nonfarm payrolls rose by just 7 cents, to $26.19. As low as that was, it represented an improvement from an increase of 2 cents, or 0.1 percent, in March, a figure the department revised downward in its April report.

During the past year average hourly earnings have risen by 65 cents, or 2.5 percent. The Washington Post said some economists think employers should by now find themselves in a position where they need to raise the pay they’re offering as the unemployment rate — 4.4 percent — drops and the talent pool shrinks.

“Two hundred thousand for jobs growth is just such a huge number, you’d think we’d get to a point where employers have to raise wages, and we’re still not seeing it,” Tara Sinclair, an economist at George Washington University and a senior fellow at the jobs site Indeed, told the Post.

Lindsey M. Piegza, chief economist at the brokerage firm Stifel Nicolaus & Co., told the Los Angeles Times that a trend in wage growth that began in January worries her. Wages were rising at a rate of 2.9 percent for the 12-month period that ended at the close of last year.

“When you talk about reaching that exciting level of 2.9 percent, now we’re down to 2.5 percent,” she said. “That’s really only modestly above what we saw in the aftermath of the Great Recession.”

Some positive signs

The Times said economists would like to see wage growth top 3 percent. Gus Faucher, chief economist at the PNC Financial Services Group, told the newspaper he thinks stronger wage growth is coming.

“When I go out and talk with businesses, a lot of them are having difficulty in recruiting workers, the job market is getting tighter and we still will have upward pressure on wages,” he said.

Some economists say the sizable April job gains make it more likely the Federal Reserve will raise interest rates again in June, but MarketWatch said that because wage growth is below the 3 percent to 4 percent pace typical at this point in an economic recovery, inflation is unlikely to accelerate.

If the Fed does not see inflation rising enough to be a threat, it is likely to leave rates alone. The central bank has been cautious in its interest-rate decisions since the Great Recession ended in 2010 and a slow recovery began. It continues today.

Economists’ concern about wage growth is tied to spending. Consumers who aren’t seeing more money in their paychecks aren’t likely to buy more goods, especially big-ticket items such as cars and boats.

New U.S. vehicle sales were disappointing in April, prompting concern that the auto industry’s lengthy boom is coming to an end. Autodata said sales of new cars and trucks fell 4.7 percent for the month, to 1.43 million, from the same month last year, the fourth consecutive monthly decline.

On a seasonally adjusted annual basis, the sales rate was 16.92 million. That figure was below forecasts of 17.1 million. Sales at GM fell 5.9 percent, Ford sales dropped 7.1 percent and Fiat Chrysler sales were down 6.9 percent.

“Over the past six months we’ve watched nearly every automaker go from positive to negative sales volume, confirming the plateau in this latest sales cycle,” Karl Brauer, executive publisher for Autotrader and Kelley Blue Book, told the Detroit Free Press.

The newspaper said sales fell for six of the eight top-selling automakers in the United States and that among Asian automakers, sales fell 7 percent for Honda, 4.4 percent for Toyota and 1.5 percent for Nissan. Sales at Hyundai rose 1.3 percent, but they fell 3.8 percent for sister company Kia.

Ford vice president of sales and marketing Mark LaNeve told the Detroit newspaper the industry’s sales pace was slower than expected throughout April, but he said it’s too soon to conclude that sales will fall more than expected in 2017.

“We have to let the year play out,” LaNeve said. “I am not discouraged by the numbers. I view it as within some kind of normal range in a plateauing industry.”

“When you look at the broader economy, including a strong job market, rising wages, low inflation and low interest rates, and couple them to low fuel prices and strong consumer confidence, you have everything you need for auto sales to … remain at or near historic highs,” GM chief economist Mustafa Mohatarem said.

Reuters said two consecutive weak months of sales have raised fears on Wall Street that the industry is on a downward trend after a long period of rising sales that began after the recession ended.

The Fed’s report on consumer credit for March likely buoyed businesses that are concerned about the mood of the American consumer. The central bank said total consumer credit increased by $16 billion during the month — a seasonally adjusted annual rate of 5.2 percent.

Economists surveyed by the Wall Street Journal predicted a smaller increase of $13 billion. In February consumer spending rose by a revised $13.8 billion, down from an initial estimate of $15.2 billion.

Sluggish GDP growth

The nation’s gross domestic product rose just 0.7 percent in the first quarter — the slowest pace in three years — largely because consumer spending was weak. It rose just 0.3 percent, the smallest gain since 2009 and a dramatic decline from a 3.5 percent increase in the fourth quarter last year, but the sluggish growth appeared to be attributable to circumstances that are likely to fade with warmer spring weather.

The government was slow to put income tax refunds into consumers’ hands because it was trying to prevent tax fraud. Now people have those dollars at a time of year when home improvement needs, summer vacation preparations and outdoor activities such as boating typically prompt people to spend.

“There’s no cause for concern,” Ryan Sweet, an economist at Moody’s Analytics Inc. in West Chester, Pa., told Bloomberg, adding that consumers “had a little bit of a hangover, and they’ll bounce back in the second quarter. The key will be wage gains — we need strong wage-growth support for spending going forward.”

American consumers’ improved finances have been reflected for some time in a healthy housing market. The Commerce Department said new-home sales rose 5.8 percent in March, to a seasonally adjusted annual rate of 621,000. The performance represented an eight-month high.

“Strong demand from home buyers and very tight supply conditions in the overall housing market are fueling demand for new homes,” Tian Liu, chief economist at Genworth Mortgage Insurance, said in a note quoted in a story in Business Insider. “Prices on new homes are stabilizing, suggesting more affordable homes are coming to the market, which will help builders capture more demand from first-time home buyers.”

Confidence remains high

Consumer confidence remained high, although it slipped a bit in two recent major surveys. The Conference Board’s Consumer Confidence Index fell to 120.3 in April from 124.9 in March — the highest reading since December of 2000 — and the University of Michigan’s Consumer Sentiment Index for April edged down to 97.0 from a mid-month reading of 98.0.

“Consumer confidence declined in April after increasing sharply over the past two months, but still remains at strong levels,” Lynn Franco, director of economic indicators at The Conference Board, said in a statement.

“Consumers assessed current business conditions and, to a lesser extent, the labor market less favorably than in March. … Despite April’s decline, consumers remain confident that the economy will continue to expand in the months ahead.”

This article originally appeared in the June 2017 issue.



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