US job growth slows as wages rebound strongly

US wage growth accelerated last month to the quickest pace since 2009, underscoring rising inflationary pressure as President Barack Obama prepares to hand over the White House to Donald Trump.

Average hourly earnings climbed 0.4 per cent in December from the previous month, beating expectations for a 0.3 per cent pick-up, the Labor Department said in the final employment report before Mr Trump's inauguration.

The figure climbed 2.9 per cent from December 2015, marking the swiftest year-on-year growth since the financial crisis.

The jobless rate rose from 4.6 per cent to 4.7 per cent, matching forecasts. The reading highlights the significant strides America has made since the economic downturn that was ignited by the 2008-09 financial crisis, which pushed the unemployment rate up to 10 per cent.

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However, the rate of job growth disappointed in December. The economy added 156,000 jobs, missing Wall Street expectations of 175,000. The November figure was revised higher to 204,000 from 178,000.

Yields on US government debt spiked after the report was released as concerns deepened in the bond market that the economy was headed towards a period of higher inflation for the first time since the financial crisis.

The Federal Reserve this week published minutes that showed several policymakers believe a quickening economy and the prospect of fiscal stimulus under a Trump administration could force them to raise interest rates more quickly.

“If the FOMC was anxious about potential increases in US fiscal spending that boosts growth and inflation, the payroll report will do little to lessen that anxiety,” said Dennis DeBusschere, head of portfolio strategy at Evercore ISI.

Mr Trump has suggested the headline employment figures are masking a structural shift, something that helped the businessman garner support among blue-collar workers in last year’s election.

To this point, the labour force participation rate, a gauge of the proportion of the working age population that has a job or is actively looking for one, came in at 62.7 per cent in December. While it has recovered since hitting a post-recession low of 62.4 per cent in 2015, it is well below its 66 per cent level ahead of the downturn.

A broader gauge of unemployment and underemployment has also failed to return to its pre-crisis levels. The so-called U6 rate was 9.2 per cent in December, the lowest since April 2008, but elevated compared with the 8.4 per cent level before the recession began in late 2007.

Mr Trump has vowed to unleash a vast infrastructure spending programme, cut taxes, loosen regulation and take measures aimed at bringing manufacturing jobs back from low production-cost countries, like Mexico, in a bid to boost growth.

The upswing in wage growth "is coming well before any fiscal stimulus hits, and underscores the unusual timing and therefore inflationary influence that a fiscal stimulus can have at this point in the business cycle", said Alan Ruskin, an analyst at Deutsche Bank. – Copyright The Financial Times Limited 2017