US: Will persistent slack continue to hold back wage growth? – Westpac

Elliot Clarke, analyst at Westpac, suggest that the US April nonfarm payrolls outcome of 263k was a stellar result, particularly as it followed a run of other strong prints and given the unemployment rate already sat at a near 50-year low, 3.8% in March and now 3.6%.

Key Quotes

“The US labour market is currently experiencing an employment boom of almost unprecedented scale.”

“Despite this momentum, having peaked at 3.6%yr in December, six-month annualised hourly earnings growth has softened in 2019-to-date to 3.1%yr at April.”

“Similarly, the employment cost index (available to the March quarter) looks to have ceased its uptrend around the same level, with wages and total compensation growth from this survey both holding around 2.8%yr over the 15 months to March. These outcomes are certainly not weak, but they fall well short of the 3.8%yr and 4.3%yr average growth of 2000 and 2001 – the last time the labour market was this tight.”

“Given the continuing strength of employment growth and very-low level of unemployment, how is it that wage growth is not rapidly running higher? Simply, it is because of the considerable ‘slack’ (available labour supply) that remains in the US labour market.”

“For as long as this excess supply of able and competent workers remains, there will be a limited need for employers to bid-up wages to attract new staff.”