U.S. hiring surge pulls in flood of new workers

Ann Santiago
March 11, 2018

Last month, the USA economy added 313,000 jobs and the unemployment rate remained at its lowest level in 17 years.

If the economy were really at full employment, wages should be growing much faster than this - somewhere in the range of 3.5 to 4 percent.

USA stocks rallied on the news, with the benchmark Dow Jones Industrial Average soaring more than 400 points to add 1.8 percent. If that trend continues - and it's worth adding the usual caveat that each month's jobs numbers are subject to revision and statistical error - there's no reason to think this expansion is reaching its natural end.

January's initial estimated wage gain - showing the biggest increase since the recession ended - had stoked concerns in financial markets that bigger than expected paychecks would lead to higher inflation and cause the Fed to shift its plan toward more aggressive rate increases.

"The 313,000 job gain is more than triple that necessary to meet the demand of new entrants into the work force, which if it sustained will continue to put downward pressure on the unemployment rate", said Joseph Brusuelas, chief economist at RSM US, an worldwide consulting firm.

The move, which adds a 25% tariff on steel imports and a 10% tariff on aluminum tariffs from every country except Mexico and Canada, could cost the industry almost 30,000 jobs, according to a study by The Trade Partnership. He is now offering software developers 20 percent more in salary than he did just two years ago. The company is also paying 75 percent of employees' health care costs, up from 50 percent. Still, the administration has opened the door to so many possible exemptions from the tariffs that an accurate estimate of the impact on jobs is all but impossible.

Gene Peters, chief executive of Rosnet, a restaurant software company, has had to offer higher pay to attract new workers.

"It's getting more competitive in this market", Peters said.

Steel and aluminum producers would presumably hire more people.

The U.S. saw gains in sectors that the president has specifically targeted, including construction (+61,000), manufacturing (+31,000), and mining (+9,000)-which, until his election in 2016, were losing jobs.

During 2017, the stock market, as measured by the S&P 500 index, surged 19 percent, partly on anticipation of corporate and individual tax cuts.

Consumers are also optimistic, likely because after-tax income grew at the fastest pace in a year last month, aided by the tax cuts.

There have been some signs that price pressures are picking up. That was down from January's revised pace of 2.8 percent, which had spooked investors because it raised fears of inflation.

Average hourly earnings for all private sector workers increased 4 cents last month to $26.75. For the 12 months that ended February 28, wages increased 2.6 percent.

Wall Street has been particularly focused on wage growth as an indicator of which story is more compelling - and more to the point, which story Fed Chairman Jerome Powell and his colleagues at the Fed will find more persuasive. New York Federal Reserve president William Dudley said that four rate increases would still constitute a "gradual" tightening.

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