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  Dr. Sohn's Commentary

May Payroll Report

June 01, 2018

The economy added 223,000 jobs in May continuing its recovery. The increase was broadly based except temporary help. The March and April numbers were revised up by 15,000. The unemployment rate dipped to 3.8 percent from 3.9 percent in April, an 18 year low. Wage rose 0.1 percent for the month amounting to 2.7 percent from a year ago continuing moderate increase.


Even accounting for the weather-related rebound, the employment story is amazing. Full employment and rising wage are encouraging workers on the fringe of the labor market to rejoin the labor force. For example, the number of people on disability has been falling recently. The continuing fall in the unemployment rate indicate that firms are finding people to hire despite the tight labor market. Civilian labor force has risen by 12,000 from the previous month and 1.8 million from a year ago. The party is not over yet .Going forward, the implementation of some of the Trump tax cut and the additional government spending will boost employment and economic activities further. The global economy, both developed and emerging, has shown new zip. Labor shortages are everywhere including Europe and Japan. However, there are worries that the economy could face a cliff in 2000 or later after a high in 2018-19.


However, wage gains, though trending up, have not shown commensurate increases. The average hourly earnings rising 0.1 percent from the previous month or 2.7 percent from a year ago. All indications shows that wages will rise at a faster pace in the future as the economy is humming and the labor market is tight. The labor force can’t rise indefinitely. A more comprehensive indicator of earnings---Employment Cost Index---has been showing healthy increases in overall pay.


Surveys by NFIB, a good leading indicator of wage trends, points to wage pressures as the labor market tightens. Small businesses are more comfortable about the economic outlook and has been hiring people at a good clip. NFIB surveys for the past several months have shown that hiring is the biggest problem facing them. 


The ongoing economic trend will give more ammunition to the FOMC to raise the interest rate three or four times in 2018. True, the employment picture is a barn burner, but the inflation picture remains cautious. The ongoing economic turbulence and slowdown in Europe should give the FOMC a pause.  

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