Slow Job Growth, But Higher Wages Could Be A Good Sign of Things To Come For Labor Market

job growthThe most recent labor report shows that the US added a meager 151,000 jobs in the first month of 2016. But while this number is underwhelming, it belies greater improvement in the labor market, at least partially offset by an unemployment which has fallen to its lowest point in 8 years: 4.9 percent.

But Standard & Poor’s US chief economist Beth Ann Bovino advises that the numbers may not be impressive but they represent the beginning of momentum. The pace may be slow, at least for now, but it could simply just be a slow start to something that will grow exponentially down the road.

For example, while hiring may not be at the rate economists had hoped, numbers do show that wages were up in January. In fact, wages increased at the fastest pace in a year. Indeed, average hourly earnings as well as hiring increased in the wavering manufacturing sector after many months of weak performance. All together, then, these variables might actually indicate that employers have to raise pay in order to retain workers and, essentially, the higher wages are attracting more workers.

“This is a very encouraging report,” comments Oxford Economics USA’s Kathy Bostjancic.   “The fact that wages rose is very important, the unemployment rate continues to go lower, and job growth at 151,000 is still a good number.” Oxford Economics is one of the payroll data forecasters over the previous couple of years. She continues, “We can’t continue at December’s pace going forward — that’s not sustainable.”

At the same time, though, some analysts absolutely expected that growth would slow. After all, the fourth quarter of 2015 was stellar: the economy added 250,000 jobs a month in that time. And Goldman Sachs argued that the totals may have been inflated because of warmer weather, expecting some bounce back in January.   And January has come and gone, with lower numbers than anticipated.

Analysts are also saying—and maybe also hoping—that the slowdown will discourage the Federal Reserve from issuing another interest rate hike when it meets next month. Independent Chicago economist Diane Swonk advises, for example, that two rate hikes are likely this year, but, she says, “The wage gains are important, so March can’t be ruled out.”