While January was a solid month of job creation in US, wages remain a concern
Although the U.S. added 257,000 jobs in January, sluggish wage growth remains a concern, says Fox Business.
As the unemployment rate continues its decline, other labor market indicators suggest a slower recovery for many U.S. workers.
Average hourly wages, for example, have been essentially stagnant for months - an indicator that has kept inflation running well below the Federal Reserve’s target rate of 2%. Wages have emerged as perhaps the key indicator being watched by economists to determine when the Fed might start raising interest rates.
During 2014, average hourly earnings growth has hovered well below the 3%-3.5% rate the Fed views as necessary to keep inflation at its desired 2% target rate.
The degree of so-called ‘labor market slack’ that emerged in the wake of the 2008 financial crisis was one of the reasons cited for the lack of wage growth despite the tightening job market. This threw around 8.9 million Americans out of work.
Although the authorities have regained all of those jobs, the quality and description of those positions has in many cases changed dramatically. Many full-time employees who lost their jobs during the financial crisis have indeed returned to work. However, part-time jobs that pay lower salaries, offer less hours and hardly provide benefits.
Throughout months, the Federal Reserve has been studying labor market trends in an attempt to determine the proper timing for raising interest rates, a move that would push borrowing costs higher and could potentially cause a drag on the economic recovery.
It will be more expensive for consumers and businesses to borrow money when rates go higher. The higher costs for borrowing could cut back on consumer spending and business expansion, which could negatively impact labor markets.
The central bank has said it won’t start raising interest rates until it reaches its dual mandate of full employment and price stability. The body has defined the former as an unemployment rate in a range of 5.2%-5.6% and the latter as an annual inflation range of 1.7%-2%, says Fox Business.
