Economics

October Jobs Report: Wage Gains Leap to Near-Decade Highs

U.S. labor market adds 250,000 jobs; wages grow 3.1 percent

Nov 2, 2018

The U.S. labor market continues to impress as hiring remains strong and wages grow. In October, employers added 250,000 jobs, far more than the roughly 190,000 that economists were projecting. Additionally, the unemployment rate remained level at 3.7 percent, even as the labor force participation rate rose from 62.7 percent to 62.9 percent. The big story, however, was the jump in annual wage growth, which leapt to 3.1 percent. Economists at the Fed have long been projecting a rise in wages, but the prediction has yet to fully materialize. October’s gain may be a sign that wages are moving in the right direction for workers.

graph showing wage growth since 2009

Top Takeaways from the Report

Wages are rising, finally

The lack of wage growth throughout the economic recovery has been a thorn in the side of workers. Despite extremely low levels of unemployment and the longest hiring streak on record, wage growth has been tepid. This has been further exacerbated by the rise of other inflationary pressures which have chipped away at the buying power of consumers. Now, however, the story may be changing. October’s wage gain of 3.1 percent is the highest jump in nearly a decade and a sign that the labor market is tight enough to force employers to raise wages. This will be an interesting trend to watch going into the holiday season and the early months of 2019, especially with retailors like Amazon announcing that their starting wage will be increased to $15.00 an hour. If other retailers follow suit during the holidays and the wage increases prove sticky after the rush of the season, we may see stronger wage gains in the future.

A near-perfect report

October’s employment report was near-perfect and it is hard to find much to be concerned about. The U.S. labor market added 250,000 jobs, which was more than expected and pushed the U.S. to 97-consecutive months of job creation. The official U.S. unemployment rate remained at a 49-year low of 3.7 percent, and the broader measure of unemployment – which includes those looking for full-time work while in a part-time job, and discouraged workers – declined from 7.5 percent to 7.4 percent. The positive unemployment outlook was bolstered by the fact that more individuals joined the labor force and are either working or looking for work. Unemployment often rises in the short-run when labor force participation increases.

While October’s employment report bolstered the case for the Fed’s continued rate hikes, it may not be as soothing for the volatility in the equity and bond markets. Despite the fact that the economy will probably benefit from more rate hikes, the markets have gotten used to nearly a decade of ultra-low interest rates and are adjusting to the new reality. Additionally, if wage gains jump too high, too quickly, the Fed may actually need to increase the pace of interest rate increases, which would likely be negative for the markets. 

Growth by Select Industry

  • Education and health services added 44,000 jobs in October. The sector has added an average of 38,100 jobs per month since the start of 2018, and a total of 499,000 over the past year.
  • Employment in leisure and hospitality expanded by 42,000 jobs, after remaining flat in September. The sector has added 254,000 jobs over the past year.
  • The manufacturing sector continued to expand, adding 32,000 jobs in October. After revisions, the manufacturing sector has added jobs for the past 15-consecutive months. 
  • The Bottom Line – The U.S. labor market and economy continue to impress and show no real sign of an impending slowdown. Combined with third-quarter economic growth registering at 3.5 percent, October’s employment report gives the Fed the green light to continue with its rate hike path, and all but cements another quarter-point increase at the Fed’s December meeting.

The division of Economics and Public Policy at Zions Bank informs and educates employees, clients, and the community-at-large by providing insight and analysis on issues related to local, national and global economic trends as well as federal banking policies. The primary goal of the Economic and Public Policy team is to help individuals and businesses understand important issues that can impact their daily financial decisions. For more information and analysis, please visit www.zionsbank.com/economy.

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