While the rate of job creation in the US increased in the month of February, there was a slowdown in the annual rate of wage growth.
According to official figures, expectations of the jobs growth by analysts were surpassed as the economy created 313,000 jobs in February.
In February, the annual earnings growth rate was 2.6 per cent which was slower than earlier even as the rate of unemployment remained at 4.1%.
There were fears of inflationary pressures after a growth rate of 2.9 per cent was clocked by the annual wage growth rate in January, which came down in February to 2.8 per cent.
There was fear in the market about the quickening of the pace of interest rate hike by the U.S. Federal Reserve following the strong wage growth figure for January. This resulted in a volatility in the market.
According to economists, wage growth would be higher in the long term despite the fact that February noted a lower than expected wage increase.
Growth in the U.S. economy has been given a boost by the tax cuts implemented last year along with an uptick in global growth which has resulted in the ninth straight year of economic growth for the U.S. economy.
The major stock indexes in the U.S. rose after the biggest increase in jobs since July 2016 was revealed in the US Labor Department report issued on Friday.
While the Nasdaq closed at a record high, there was a rise of almost 2 per cent in three major US stock indexes.
“We have an economy that is firing on all cylinders and the job market is a reflection of that,” said Gus Faucher, chief economist at PNC Bank.
February’s gains included an increase of 61,000 construction jobs – the biggest rise since 2007. The manufacturing sector also added 31,000 jobs, while retail employment rebounded from declines last year.
In February, more than 800,000 was the rise in the number of people working or looking for work. The labor force participation rate was 63 per cent in February as the month noted the largest monthly increase in the labor force in over two decades of time.
The rate of unemployment remained steady at 4 per cent which is also the rate that has been held since last October despite the increase.
The growth in wages could be cooled off by a large number of potential workers sitting on the sidelines according to analysts.
“The huge gain in payrolls belies the notion that the [labour] market has truly reached full employment,” said Sophia Koropeckyj of Moody’s Analytics.
The turnaround in sectors such as manufacturing was reflected in the higher rates of labour force participation in recent months driven by an enhanced involvement of men of prime working age – those aged between 25 and 54 years.
But there are headwinds like skill gaps and opioid addiction that would prevent the growth of the labour force at the same rate growth as was seen in the month of February, said Ms Koropeckyj.
“There’s only so much of a boost you can get because a lot of people are structurally unemployed,” she said. “Certainly there is slack, but how much of it will be practically absorbed is questionable.”
(Adapted from BBC.com)