In a year characterized by big ups and downs in the stock market, one thing Wall Street has been able to rely on is a steady increase in the number of new jobs.
Economic tea readers predict the same in November. The U.S. likely added 190,000 new jobs last month to keep the unemployment rate at a 49-year low of 3.7%, forecasters say.
Here’s what to watch in the latest employment report due Friday morning.
An extremely “tight” labor market — what economists call it when firms can’t find enough people to hire — is driving up wages.
The yearly increase in hourly pay broke through the 3% barrier in October (3.1%) for the first time since 2009. And wage gains in the most recent 12-month period could climb to 3.2% in November.
It’s been a long time coming for American workers. Pay rose a mild 2% a year through most of an expansion that began in mid-2009, well below the 3% to 4% rates that typically prevail in good times.
The problem is rising wages have historically been seen as a prelude to higher inflation. Some economists contend the Federal Reserve needs to further raise interest rates to head off inflation and several Fed officials themselves view the cost of labor as warning sign.
If wages keep rising toward the 4% mark, the Fed is likely to pursue a more aggressive course of rate hikes. And that spells trouble for home sales, the stock market
and possibly the broader economy.
“Future employment reports will be increasingly important, as the Fed will be more closely analyzing incoming data to determine appropriate monetary policy,” said economist Andrew Hollenhorst of Citi.
The pace of job creation was supposed to slow in 2018 for the fourth straight year, but a funny thing happened: Hiring actually sped up.
The economy has produced an average of 213,000 new jobs a month so far this year, topping the 182,000 average in 2017 and 195,000 in 2016.
“2018 has been a banner year for the job market,” wrote economists Martha Gimbel and Jed Kolko of the job-search site Indeed.com. “Job growth picked up and workers have continued to find jobs — a pleasant surprise at this point in the economic cycle.”
The Trump tax cuts certainly helped. So did a big increase in government spending.
Yet eventually hiring has to slow. The government-fueled stimulus is starting to fade, the economy is in the later stages of the business cycle and labor force simply isn’t growing fast enough to fill near-record job openings.
Economists don’t think it will happen this month, however, even if hiring falls well short of the 250,000 increase in October. Last month’s job gains may have been exaggerated by rebuilding efforts after a pair of major hurricanes toward the end of summer.
The holiday season and onset of winter sometimes play havoc with the government’s effort to adjust its estimate of how many new jobs are created at the end of the year.
Retailers often hire huge blocs of temporary workers before the holiday season gets underway, but they don’t always do so at the same time each year. After barely any new hiring in the prior month, November could see a big bump in retail jobs that leads to stronger employment gains than Wall Street forecasts.
Construction companies and manufacturers, for their part, have added lots of new jobs in the past six months, but home sales are slowing and skilled tradesman are in short supply. Hiring is bound to slow in both industries.