Jobs number strong but income growth disappoints

The U.S. economy added a net 228,000 jobs in November, the Labor Department reported this morning. Economists surveyed by Bloomberg were looking for a gain of 195,000. That kept the unemployment rate at 4.1%, the lowest since 2000.

Disappointingly, however, average hourly earnings increased by just 0.2%, less than the 0.3% gain expected by economists surveyed by Briefing.com That took the year over year gain in average hourly earnings to 2.5%, up from 2.3% in October, but still below what economists see as “normal” for this stage of economic growth.

The labor force participation rate was 62.7% in November, also higher than “normal” for this stage in economic growth. The U6 full unemployment rate–which counts unemployed, discouraged and part time workers who would like full time jobs rose to 8.0% in November from 7.9% in October.

This report is likely to be enough to keep the Federal Reserve on track to an increase in interest rates at the Fed’s meeting next week.

But it continues several ‘mysteries” that will affect how quickly the Fed raises interest rates in 2018. Economists expect that wages will rise during a sustained pickup and the relatively sluggish growth in wages during this economic expansion remains unexplained. Economists continue to predict that wages will start to rise at a faster rate–a rate perhaps fast enough to raise fears of wage inflation at the Federal Reserve–as the economic expansion continues. However, they’ve been saying that for months and wage growth has stubbornly refused to accelerate. A logical conclusion would be to look for something structural in this economy that’s inhibiting wage growth but most of the explanations put forward–international competition and the loss of labor bargaining power in the United States, for example–fall outside the Fed’s control. In my view the Fed remains a prisoner of its balance sheet and crisis monetary policies–the central bankers want to reduce the balance sheet and raise interest rates so they have some ability to maneuver in the next economic crisis even if current economic conditions don’t strongly argue for higher rates and a more restrictive monetary policy.

A separate report today from the University of Michigan showed the U.S. consumer sentiment dipping this month, for a second month, to 96.8. Economists had expected a reading of 99.