Although economists say December’s job gains are respectable for this stage in the economic cycle, some worry that workers are losing ground, as wage gains slipped to 2.9 percent on an annualized basis, below economists’ expectations.
Glassdoor.com chief economist Andrew Chamberlain called the figure “incredibly disappointing,” noting that in spite of 145,000 new jobs and an unemployment rate that remained steady at 3.5 percent, pay growth has consistently lagged the rest of the labor market recovery since the Great Recession.
Dan North, chief economist at Euler Hermes North America, said part of this is a function of the lower number of available jobs at this stage of the economic cycle, but he added that the pressure President Donald Trump’s trade war is exerting on corporate profits is a key culprit behind the falloff in worker pay. “There’s no question that margins are being squeezed. We’re seeing a lot of evidence of that,” he said.
“There are two implications. It takes some of the pressure off profit margins for companies, but it’s healthy enough to help consumers feel like they can go out and spend,” said Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute — although he added that further deceleration could undermine consumer confidence and lead to a cutback in spending.
The creation of more low-paying jobs also could play a role, according to Josh Wright, chief economist at iCIMS. The December figures showed a surge in leisure and hospitality, health care and social assistance, and retail jobs, which tend to be lower-income positions.
Jeff Mills, chief investment officer of Bryn Mawr Trust, offered a silver lining to slowing wage growth: It suggests monetary policy will remain accommodative this year. “It underscores an inflation backdrop that remains pretty benign. It’s unlikely to provoke tightening by the Federal Reserve,” he said.
“The good news for consumers is the Federal Reserve has indicated it has the economy’s back, having pivoted on interest rates in 2019,” said Mark Hamrick, senior economic analyst at Bankrate.com. But the trio of rate cuts last year has left the central bank with a weaker hand to play in the event of a downturn, he added. “A big part of its ammunition is gone.”
With capital investment at a trough as corporate executives wait out the uncertain outcome of Trump’s trade policies, the U.S. economy has been dependent on robust consumer spending for continued momentum. A sharp or sustained drop in that activity would mark an economic inflection point, economists said.
The average hourly workweek has ticked lower from a year ago, which translates into smaller take-home pay and less disposable income.
Samana also noted that the average hourly workweek has ticked lower from a year ago, a potentially bad sign. In the absence of robust wage gains, a shorter workweek translates into lower take-home pay and less disposable income in the average American pocketbook.
“In some ways, the U.S. economy’s been doing the heavy lifting of the rest of the world,” Hamrick said. “That imbalance cannot continue forever.”
A shorter workweek also is a frequent harbinger of impending job cuts. “Often, companies reduce hours worked before they lay people off,” Samana said. “It’s something that could be one of those leading indicators.”