Wages are rising more quickly: the US is clearly up against the constraints of full employment. The 3-month annualised change for average hourly earnings (total private employees) hit 4.24% in August, the highest since July 2008.
Higher wages, however, reflect the boom in technology-related services and may, therefore, be less of an inflation threat. The Q1 2019 QCEW released on Wednesday last week showed that the biggest rise in average weekly wages (by county) occurred in San Francisco, with a rise of 10.2% y/y. Inflation remains dormant in services, even though this sector remains the primary engine for job creation and growth.
The dip in payrolls growth could be construed as evidence of a broad-based slowdown in the economy. It is possible that the downshift in payrolls simply reflects the challenges employers face: a tight labour market, creative destruction (namely retail) and less favourable demographics. The 96k increase in private sector employment is still in line with the most optimistic estimates of the break-even rate for payrolls, that would leave the jobless rate unchanged. Indeed, the unemployment rate edged down two basis points last month to 3.69%.
Inflation may not follow, because investment in IT remains so strong. It is not just software and R&D – Friday’s payroll report showed another increase in employment for computer & electronic products. Investment in information processing equipment could rise to a fresh, all-time high as a share of real GDP in Q3.
