U.S. job growth likely accelerated in January and wages increased further, underscoring the strong momentum in the economy at the start of the year.
Nonfarm payrolls probably increased by 180,000 jobs last month, according to a Reuters survey of economists, after rising 148,000 in December. The unemployment rate is forecast unchanged at a 17-year low of 4.1 percent.
The Labor Department will release its closely watched employment report on Friday at 08:30 am. Economists say employment gains are being driven by buoyant domestic and global demand. They saw little boost to job growth from the Trump administration’s $1.5 billion tax cut package passed by the Republican-controlled U.S. Congress in December, in the biggest overhaul of the tax code in 30 years.
“I don’t think there will be much impact on job growth, in part because the economy is pretty much at full employment,” said Robert Murphy, an associate economics professor at Boston College. “The impact is going to be more on the wage/income side. We will start to see more pressure on wages.”
President Donald Trump and his fellow Republicans have cast the fiscal stimulus, which includes a reduction in the corporate income tax rate to 21 percent from 35 percent, as creating jobs and boosting economic growth.
According to outplacement consultancy firm Challenger, Gray & Christmas, only seven companies, including Apple, had announced plans to add roughly a combined 37,000 new jobs in response to the tax cuts as of the end of January.
January’s anticipated jobs gains will be below the monthly average of 204,000 over the past 3 months. The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population.
Job growth is slowing as the labor market nears full employment. Companies are increasingly reporting difficulties finding qualified workers, which economists say will force some to significantly raise wages as they compete for scarce labor.
MINIMUM WAGE INCREASES
Average hourly earnings are forecast rising 0.3 percent in January after a similar gain in December. That would lift the year-on-year increase in average hourly earnings to 2.6 percent from 2.5 percent in December.
The anticipated rise in wages will reflect increases in the minimum wage which came into effect in 18 states last month. Wages could also get a lift from the tax cut. Companies like Starbucks Corp and FedEx Corp have said they will use some of the savings from lower taxes to boost wages for workers.
Further gains are likely in February when Walmart raises entry-level wages for hourly employees at its U.S. stores.
Annual wage growth remains below the 3 percent that economists say is needed to push inflation towards the Federal Reserve’s 2 percent target. Fed officials on Wednesday expressed optimism that inflation will rise toward its target this year.
Policymakers, who voted to keep interest rates unchanged, described the labor market as having “continued to strengthen,” and economic activity as “rising at a solid rate.” U.S. financial markets are expecting a rate hike in March.
“A solid jobs market environment, together with a pickup in wage pressure, and on top of healthy U.S. economic activity, will keep the Fed on its charted tightening course,” said Beth Ann Bovino, U.S. chief economist at S&P Global Ratings in New York.
The U.S. central bank has forecast three rate increases this year. It raised borrowing costs three times in 2017.
With the January employment report, the government will publish annual “benchmark” revisions and update the formulas it uses to smooth the data for regular seasonal fluctuations. It will also incorporate new population estimates.
The government said in its preliminary estimate last September that the level of employment in March 2017 was likely 95,000 higher on a seasonally adjusted basis than it had reported. The shift in population controls means figures on the labor force or number of employed or unemployed in January would not be directly comparable to December. The unemployment rate dropped seven-tenths of a percentage point in 2017 and economists expect it to hit 3.5 percent by the end of the year.
Employment gains were likely broad in January. Manufacturing payrolls are forecast increasing solidly. The sector is being supported by strong domestic and international demand as well as by a weaker dollar.
Unseasonably cold weather probably slowed hiring at construction sites last month. Retail employment likely rebounded after declining by 20,300 jobs in December.