The headline economic fact in the USA for quite some time has been the low unemployment figure. The latest reading of the figure comes in at 3.7%, unchanged from the previous month despite the fact that the US economy generated 250000 jobs in October. This number is well above the number of people entering the employment market each month due to population growth; in 2016, this figure was given as 145000 by The Wall Street Journal. Theoretically, if job creation outstrips the number of workers available to be employed, wage inflation should result.
As we have pointed out often enough, unemployment has long since ceased to be a simple figure equal to the number of people out of work who would like to work. Instead, one needs to be actively seeking employment and registered as unemployed to be counted. This means that there is a pool of “workers” who are out of work, but either not registered as such or not currently seeking employment. This pool needs to be added to the (approximately) 145000 people entering the job market each month to have a genuine feeling about the availability of workers. A further factor which expands the pool is those in part-time work who are looking for full employment.
Many economists set an arbitrary level of 5% of the workforce as the practical level for full employment. The current official figure of 3.7% unemployed ought to mean that wage inflation is being created in the US job market. The wage growth figure for October grew at an annual rate (year-on-year) of 3.1% which is the best level seen in 9 years. The current inflation level is 2.3% in the USA, so the boost in wages is significantly above inflation, meaning that workers’ disposable incomes are rising.
The decent wage growth and job creation figures are expected to make a further (probable) 0.25% hike in the interest rate likely when the Fed meets in December, as the Fed continues on its policy to shift interest rates back towards their historic average.