Wages were the October economic surprise as a government report this morning said average annual hourly pay increased to 2.8% during the month, while employers added 161,000 workers to their payrolls and unemployment dipped to 4.9%.
Both job growth and the unemployment rate were largely in line with what economists were expecting. The Labor Department’s Bureau of Labor Statistics also revised up the previous reports for August and September, adding a combined 44,000 more jobs.
What economists hadn’t predicted — and what typically they aren’t asked about in the surveys preceding the monthly employment report — was the size of the wage increase. The BLS said average hourly earnings for all employees on private non-farm payrolls rose by 10 cents to $25.92, following an 8-cent increase in September. That works out to an annual increase of 2.8% over October of 2015.
It is the largest wage increase since the recession year of 2009. For the last several years, annual wage growth has hovered around 2%, defying predictions by labor economists that employers would have to begin increasing pay in light of the tight labor market. They pointed to the labor force participation rate which has declined to some of the lowest levels in almost half a century. In October the rate was 62.8%. The rate is the percentage of the total working age population that is either employed or actively looking for work.
Even as the participation rate was declining, so was the unemployment rate. For workers with a college degree, the unemployment rate in October was 2.6%. For those with at least some college or an associate degree it was 3.8%.
The government’s more comprehensive measure of unemployment, which includes people working part-time because they can’t find fulltime jobs and others not part of the officially unemployed tally, dropped to 9.5% in October, the lowest level since 2008.
These factors, economists said, plus the tidal wave of retiring Baby Boomers, would put pressure on employers to raise wages in order to attract the shrinking of pool of talent. Wages did begin to grow late last year, but, until now, the increases were small.
One month of data isn’t enough to say predictions of strong wage growth are coming true, but it does suggest that employers may be loosening their purse strings.
The strongest job growth in October came in: