Wages Grow Fastest in Decade, Unemployment Keeps Low

September 7, 2018 Updated: October 5, 2018

Average hourly earnings of Americans increased to $27.16 in August, 10 cents up from the months before and more than 2.9 percent up from August 2017, according to data reported on Sept. 7 by the Bureau of Labor Statistics (BLS).

“In our view, the biggest news in this morning’s report was the jump in average hourly earnings growth, which beat consensus,” Goldman Sachs stated in a report.

The pay hike was the highest since May 2009.

The economy added 201,000 jobs, more than the expected 190,000. Job growth for June and July (248,000 and 157,000) were revised down by a combined 50,000 due to the bureau obtaining additional data.

“Today’s #JobsReport is more great news for the #AmericanWorker,” said Commerce Secretary Wilbur Ross in a Sept. 7 tweet. “Thanks to the pro-growth policies of @POTUS, U.S. businesses are hiring and wage growth continues to rise.”

Unemployment held steady at 3.9 percent in August. Since the 1960s, there have been only ten months when unemployment dropped below 4 percent. Five of them were in 2000, shortly before the dot-com bubble burst. Four have come since April.

The average unemployment over the past six months dropped to 3.93 percent, the lowest since March 1970.

Unemployment for black and Hispanic people still hovered around historical lows (6.3 percent and 4.7 percent respectively).

“We are breaking all Jobs and Economic Records,” President Donald Trump said in a Sept. 8 tweet. “But, importantly, our Country has TREMENDOUS FUTURE POTENTIAL. We have just begun!”

The unemployment rate doesn’t count the jobless who didn’t look for work in the preceding four weeks. The BLS also provides a rate that counts people who looked for work in the past 12 months, as well as people who work part-time but want a full-time job. That rate dropped to 7.4 percent in July—the lowest since April 2001.

Trump has been credited with accelerating economic growth with his tax and regulation cuts. He’s also pushed companies to invest domestically, rather than overseas.

GDP growth accelerated to 4.1 percent in the second quarter on strong consumer and business spending, as well as an increase in exports.

The overall economy appears little affected by Trump’s increases of tariffs on certain imports, which aimed to push for a more level playing field with other countries on trade.

Oil Price Pushback

The increased wage growth is being offset by rising prices of consumer goods. Two inflation indicators, the Consumer Price Index and Personal Consumption Expenditures, posted annual rates of 2.9 and 2.3 percent for July, significantly fueled by an increase in oil prices over the past year.

Both gas and heating oil prices are tied to crude oil price, which fluctuates as oil-producing countries move production targets and face wars, natural disasters, and internal turmoil. Resulting price swings are further amplified by oil speculators who try to take advantage of the market shifts.

President Donald Trump has repeatedly criticised the Organization of the Petroleum Exporting Countries (OPEC) for capping production, a way of artificially pushing prices up. In a July 4 tweet, he reminded OPEC the United States holds notable security leverage over the organization.

“The OPEC Monopoly must remember that gas prices are up & they are doing little to help. If anything, they are driving prices higher as the United States defends many of their members for very little $’s,” he said. “This must be a two way street. REDUCE PRICING NOW!”

Also, Trump’s withdrawal from the Iran nuclear deal on May 8 caused some market anxiety since it translates into sanctions on substantial Iranian oil exports. The administration made clear, however, it intends to work with countries to switch to other oil suppliers before the sanctions take effect on Nov. 4. It will also consider waivers for countries that need more time.

The price of oil seems to have somewhat stabilized over the past month and a half.

Follow Petr on Twitter: @petrsvab
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