7 Takeaways From the U.S. Jobs Report
- The U.S. economy remains one of the world’s most powerful employment-creation machines: Adding 250,000 jobs last month, the economy is maintaining an average annual pace that is particularly impressive for this stage of its cycle. The labor market is managing to overcome skill mismatches and the usual headwinds associated with the slowdown in the highly cyclical sectors of the economy, such as housing.
- Tightening labor-market conditions are helping wage growth: Thanks in part to the favorable base effect from a depressed number a year ago, wages rose 3.1 percent in October (year-on-year), up from 2.8 percent growth in September. It’s the first time since 2009 that wages have increased more than 3 percent, and maintaining such a trend is key to an economic expansion that is more inclusive and more sustainable socio-politically.
- More jobs and higher wages are attracting people back into the labor force: Both the labor-force participation rate and the employment-to-population ratio rose by 0.2 percentage points, to 62.9 percent and 60.6 percent, respectively. This is encouraging structurally, especially given that both numbers remain at relatively low levels historically.
- All of this shows solid actual and potential growth: The stronger the labor market, the better the underpinnings for household income and consumption. With business investment also picking up, and fiscal stimulus turbocharging the growth dynamics, this combination has the potential to boost the economy not just over the next 12 months, but also over the longer term.
- The U.S. will continue to outpace other advanced economies: The strong report contrasts with the economic data from Europe and China this week. The disparity highlights a peculiar global picture, especially for the advanced countries, by moving those nations further away from correlated growth and toward even greater divergence. This trend will continue to favor U.S. interest-rate differentials and the dollar, fueling some underlying market and liquidity stressors.
- The data amplify the policy risk-return equation facing the Federal Reserve: Strong job creation, a historically low unemployment rate and rising wages will encourage the Fed to deliver on its policy guidance of a path of future rate hikes that is above consensus market expectations. In the process, the central bank would attempt to make further progress in delivering a “beautiful normalization” by moving further away from a prolonged period of experimental and unconventional monetary measures. At the same time, the higher labor-force participation rate points to remaining slack, which dampens inflationary concerns. And the hard-to-predict threat of adverse international spillovers and spillbacks would increase the risk of a Fed over-tightening.
- Post-election policy making now matters even more: The policy bottom line is clear, especially once the U.S. midterm elections are over. The priority should be reinforcing pro-growth policies, including by moving on infrastructure enhancements and modernization. For Europe, the path forward involves a more serious effort on structural reforms and progress in strengthening the regional architecture by completing the banking union and getting clarity on fiscal integration. And China should resist the temptation to rely excessively on a historical growth model that is becoming less powerful. Instead, it should accelerate reforms favoring more domestically oriented growth that depends less on public investment and state-owned enterprises, as well as work toward defusing trade tensions with the U.S.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO. His books include “The Only Game in Town” and “When Markets Collide.”
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