US wages grow at fastest pace in nine years

Economy adds 219,000 jobs in August keeping US on track for more interest rate increases

Men work on a construction site in Washington, DC.  Hiring surged in the US in August, and employers increased wages by the most in nearly a decade. Photograph:  Mari Matsuri / AFP / Getty Images

Men work on a construction site in Washington, DC. Hiring surged in the US in August, and employers increased wages by the most in nearly a decade. Photograph: Mari Matsuri / AFP / Getty Images

 

US wages rose at their quickest pace in nine years in August, providing the highlight of a labour market report that topped Wall Street forecasts and keeps the Federal Reserve on track to raise interest rates later this month.

The latest non-farm payrolls data continue to cast the US economy – which in the June quarter grew at its fastest pace in nearly four years – in a positive light, even as consumers and investors try to get a handle on the potential fallout from the US’s trade war with its allies.

Moreover, the jobs figures add to a recent stream of data that keeps the Fed on track to raise interest rates at its policy meeting later this month and possibly once more after that by the end of December. Treasuries sold off and the dollar rallied on expectations for tighter monetary policy.

Most encouraging was the pick up in wages, which were 2.9 per cent higher in August from a year ago and the fastest rate of growth since June 2009. That compared with market expectations growth would hold steady at July’s 2.7 per cent pace. Month-on-month, wages grew 0.4 per cent in August.

The domestic labour market added 201,000 jobs last month, from a downwardly revised 147,000 in July (previously 157,000), according to the Bureau of Labor Statistics. That topped the median forecast of 191,000 among economists surveyed.

That represented a rebound from July’s figure, which was weighed down by layoffs following the bankruptcy of Toys R Us retail chain, and compares with the average rate of 215,000 jobs created a month in the first seven months of 2018. Last year, the economy added an average 182,000 jobs a month.

The unemployment rate held steady at 3.9 per cent, although economists expected it to drop to 3.8 per cent, which would have taken it back to the equal-lowest level in decades.

James Knightley at ING said wage growth was the highlight of the report and “really powerful given statistical headwinds” related to how more working days during August deflates the average hourly pay rate for those on a fixed salary.

“This report is strong throughout and, with the economy likely to grow more than 3 per cent again [in the third quarter], it will keep the Fed hiking interest rates with another move in September with a further increase in December,” Mr Knightley added. – Copyright The Financial Times Limited 2018