Slow job growth wor­ries fi­nan­cial mar­kets

The Pak Banker - - MARKETS/SPORTS -

Amer­i­can work­ers have be­gun to see a no­table pickup in their pay­checks af­ter years of stag­na­tion, with wages in­creas­ing at their fastest rate since the end of the Great Re­ces­sion.

Govern­ment data re­leased Fri­day showed that av­er­age earn­ings spiked 12 cents an hour in Jan­uary, the se­cond-big­gest jump in at least a decade. As a re­sult, wages have risen at an an­nu­al­ized rate of 2.9 per­cent over the past six months.

Still, the ques­tion re­mains whether those gains will be sus­tained or will prove to be an­other blip in the na­tion's bumpy eco­nomic re­cov­ery. Hir­ing surged at the end of last year, giv­ing work­ers more lev­er­age to seek bet­ter wages. But Fri­day's data also showed that job growth slowed in Jan­uary to 151,000 po­si­tions - a solid num­ber but less than an­a­lysts had ex­pected.

The un­em­ploy­ment rate dipped to 4.9 per­cent, a mile­stone in the na­tion's re­cov­ery since un­em­ploy­ment peaked at 10 per­cent dur­ing the re­ces­sion.

"This is very con­sis­tent with a re­cov­ery that's mov­ing in the right di­rec­tion," La­bor Sec­re­tary Thomas Perez said in an in­ter­view. "We're get­ting close to the sum­mit of the moun­tain, but we're not yet there."

Fi­nan­cial mar­kets re­acted badly to the news, with the Stan­dard & Poor's 500-stock in­dex fall­ing 35.4 points, or 1.9 per­cent, to 1880.05 and the tech­nol­ogy-heavy Nas­daq com­pos­ite in­dex plung­ing 146.42 points, or 3.25 per­cent, to 4363.14. The Dow Jones in­dus­trial av­er­age also fell nearly 212 points, or 1.3 per­cent.

In­vestors' anx­i­eties may have been driven by dif­fer­ent, and po­ten­tially con­flict­ing, con­cerns: that job growth was slow­ing, in­di­cat­ing a softer econ­omy, and that higher wages would spur in­fla­tion, lead­ing the Fed­eral Re­serve to raise rates.

Be­fore the re­ces­sion, wages were grow­ing at an an­nual rate of about 3.5 per­cent. But then mil­lions of work­ers lost their jobs and the job­less rate sky­rock­eted. Since 2010, wage growth has flat­lined at roughly 2 per­cent de­spite a dra­matic drop in un­em­ploy­ment.

That stub­born stag­na­tion has ex­ac­er­bated the coun­try's ris­ing in­equal­ity in wealth and in­come. Work­ers' wages re­mained stuck even as U.S. stock mar­kets notched record highs in re­cent years. Weak hourly earn­ings also sig­naled to some econ­o­mists that Amer­ica's work force was still in dis­tress.

Jan­uary's data showed lit­tle change for sev­eral of the hard­est-hit cor­ners of the job mar­ket. About 2.1 mil­lion peo­ple have been out of work for six months or longer, about the same num­ber as in June. An­other 6 mil­lion have part-time jobs but would pre­fer full-time work. Hun­dreds of thou­sands have be­come so dis­cour­aged by their job prospects that they have stopped look­ing.

One key mea­sure did show some im­prove­ment: The size of the work force in­creased slightly, nudg­ing the par­tic­i­pa­tion rate up to 62.7 per­cent af­ter fall­ing last year to the low­est level in a gen­er­a­tion.

"Job cre­ation and wage growth need to be far stronger, and they need to re­main strong for a longer pe­riod of time, be­fore the econ­omy is close to full em­ploy­ment," said Elise Gould, se­nior econ­o­mist at the left-lean­ing Eco­nomic Pol­icy In­sti­tute. Still, the re­cent wage gains, capped by the sur­pris­ing uptick in Jan­uary, pro­vide some re­as­sur­ance that the Amer­i­can re­cov­ery re­mains healthy in the face of tur­moil in global fi­nan­cial mar­kets at the start of the year. Ex­pec­ta­tions for world eco­nomic growth have dimmed, and fears are ris­ing that weak­ness over­seas - par­tic­u­larly in China - could spill over onto U.S. shores.

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