Economic Update: Wages and Job Market Insights
Kevin Hassett, the Director of the National Economic Council, shared his favorable view on President Trump’s recent State of the Union address during a segment on Kudlow.
The latest employment report from the Department of Labor reveals that wage increases for American workers are outpacing inflation significantly.
According to the Bureau of Labor Statistics, average hourly wages for private nonfarm employees rose by 15 cents, or 0.4%, last month, reaching $37.32. This was better than the 0.3% increase that economists at LSEG had anticipated.
Year-on-year, average wages grew by 3.8% in February, slightly up from 3.7% in January, although LSEG economists had expected the growth to hold steady at 3.7%.
Job Cuts Not Meeting Expectations
In a surprising turn, the U.S. economy cut 92,000 jobs in February, a figure that was much worse than predicted.
The BLS data also indicated that the average weekly working hours remained stable at 34.3 hours, aligning with LSEG economists’ projections and unchanged from January. However, workers in the manufacturing sector saw a decrease in average hours from 40.2 to 40.1, while overtime remained steady at three hours.
While wages are rising, inflation continues to be a concern, remaining above the Federal Reserve’s target of 2%. Specifically, the personal consumption expenditures (PCE) index, favored by the Fed, recorded an annual rate of 2.9% in December, with the core PCE (excluding food and energy) rising by 3% year-on-year.
The Consumer Price Index (CPI), another gauge for inflation, reported a 2.4% year-on-year increase in January, following a slight rise of 2.7% in December, indicating a downward trend. Core CPI also saw a 2.5% year-on-year climb in January.
Such inflationary pressures are problematic, particularly for households with lower incomes facing high prices on essentials.
Labor Market Insights
The rapid wage growth is somewhat sheltering workers’ purchasing power, pushing against the erosion caused by inflation, although the ongoing inflationary dynamics limit this relief. It’s also a signal of competition among employers to attract qualified talent. The unemployment rate only nudged up, moving from 4.3% to 4.4% from the month prior.
Lawrence Yun, the chief economist at the National Association of Realtors, noted that cuts in the federal workforce alongside private-sector job losses led to a dip in salaried positions in February. Yet, he highlighted that low unemployment persists, partly due to the southern border situation, which helps sustain wage growth at 3.8%.
Debate on Interest Rate Hikes
There seems to be a growing divide within the Federal Reserve, with some officials advocating for renewed interest rate hikes as inflation numbers dwindle.
Andy Bregenser from TD acknowledged that February’s values complicate the previous trends observed in January regarding employment. He emphasized that small business owners are navigating these challenges carefully, with a need to balance growth with responsible cost management.
One consistent thread from small business employers is that, while slower job growth might lessen hiring pressures, wages and competition for skilled workers remain elevated.
Gregory Daco from EY Parthenon expressed that wage trends were stronger than anticipated, reflecting persistent cost pressures despite a slowdown in employment growth.
Daco further pointed out that private sector turnover is hitting near-record lows, with ongoing surveys indicating restrained compensation strategies and modest wage growth signals going forward.
He projected a slowdown in wage growth to 3.5% in the latter half of 2026, given an expected dip in labor demand.
