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Economic Forecasts

Wages Growing Only Gradually

Kiplinger's latest forecast on jobs

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GDP 3.0% pace in '18, up from 2.3% in '17 More »
Jobs Unemployment rate down to 3.8% by end '18 More »
Interest rates 10-year T-notes at 3.3% by end '18 More »
Inflation 2.6% in '18, up from 2.1% in '17 More »
Business spending Up 7% in '18, boosted by expanded tax breaks More »
Energy Crude trading from $55 to $60 per barrel in April More »
Housing Existing-home sales up 1.6%, new-home sales up 9.8% in '18 More »
Retail sales Growing 4.6% in '18 (excluding gas) More »
Trade deficit Widening 5%-6% in '18 More »

January’s reported strong wage growth was misleading. News that paychecks jumped to a 2.9% yearly growth rate stoked Wall Street’s fears that the Federal Reserve would respond to impending inflation with faster interest rate hikes. But the wage rates cited in the government’s employment report are calculated by dividing payrolls by hours, which can bump up if hours fall, which is exactly what January’s bad weather caused. Warmer weather should cause February’s wage hike to retreat to 2.6% or so. If wages truly accelerated in January, production workers’ wages would have shown it too, but they did not. They rose 2.4% from a year ago. Expect growth in worker pay to slowly pick up to 3% by year’s end.

January’s 200,000 new jobs indicated that most industries are doing well. Retail jobs grew again after a one-month decline. Food service continued its strong climb, signaling that eating out is still in vogue. Home builders and durable-goods manufacturers continued adding positions, boosted by low housing inventories and stronger export prospects.

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We expect monthly job growth to slow this year, reflecting a shrinking labor force. Since a peak of 250,000 per month in 2014, the economy has added fewer jobs each year as the pool of workers has steadily shrunk because of flat population growth. Expect 2018 to add an average of 160,000 jobs monthly, down from 171,000 in 2017.

Unemployment held at 4.1% in January. Look for 3.8% by the end of 2018 as it becomes harder for employers to find suitable candidates. The short-term unemployment rate (less than six months) has fallen to its lowest level in 65 years.

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Further proof of a tightening labor market is evidenced by lots of job openings in certain sectors: construction, food service, health care, transportation and warehousing. Openings in health care and food service are at their highest levels in 15 years.

See Also: The Best Jobs for the Future

Source: Department of Labor, Employment Data