Take this job and J.O.L.T. it!

Friday’s employment report was, on the surface, a mixed bag, with a surge in job growth coupled with lower than expected average hourly earnings (AHE) growth. Last month’s 2.9% year-over-year growth in AHE was a shocker, as it showed that the growing strength of the U.S. economy was not only adding jobs, but workers were either finding better jobs or getting wage increases from their current employers. The February report —published Friday— showed a slight revision to January’s AHE (2.8% from 2.9%) and a lower than expected, but still strong, 2.6% increase in February.

A report very closely watched by the Fed, the Labor Department’s monthly “Job Openings and Labor Turnover Survey” (JOLT) report showed last month that workers voluntarily quitting their jobs (quit rate) because they were confident in finding new jobs increased to its highest level since January 2001. The report takes some time to compile, so it looks back two months (so February JOLT report uses December 2017 data). The next JOLT report comes out March 16. I think it will tell a similar tale as last month’s report. This seems to be a nice progression for the labor market and the economy. First, we had strong job growth that brought workers back into the workforce; however, until recently, the jobs workers were returning to were relatively low paying, with few or no basic benefits. After the carnage of the “Great Recession,” many Americans were just happy to have a job. Maybe happy isn’t quite the right word, but it certainly can be said that workers were hanging on to their jobs for dear life. Now, as the demand for labor has continued to be strong, workers have begun to be able to at least partially dictate wages and benefit packages. This is a good thing.

From the Fed’s perspective, the strongest element of inflation is wage inflation. The Fed wants what it would consider to be positive inflation, as that drives demand and economic growth—a virtuous cycle. However, getting inflation “just right” is like landing a plane on an aircraft carrier at dusk in choppy waters; it takes a lot of skill and a good degree of luck. I think that regardless of the lower than expected AHE from the latest employment report, if the Fed sees the JOLT quitting rate is the same or higher than the last report, they will really start pressing the issue for four Fed Fund hikes this year.


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