Tallahassee Journal

More jobs, not much more money

More jobs, not much more money

The December jobs report shows lots of new jobs, but not a lot of money. And until workers start to get better raises, investors have little to fear from inflation. The U.S. added 252,000 new jobs in December, according to the Bureau of Labor Statistics, beating economists’ estimates of 240,000. The BLS revised its blockbuster November count up by 50,000 jobs to 353,000, and the unemployment rate fell to 5.6% from 5.8% in November.

Nevertheless, wages remain low. The BLS revised down its 0.4% November increase in average weekly wages to 0.2%, and it said that wages rose 0.2% in December as well. Falling unemployment is good for the economy as a whole: As more people join the labor force, demand increases — and that should lead to more hiring. But stagnant wages mean that economic growth could be weak and that any increase in gas prices would again squeeze consumers.

For investors, the jobs report means that inflation is deader than Jacob Marley with a stake of holly through his heart. You can’t have a wage-price spiral without increased wages. Combined with a nearly 50% fall in oil prices, it’s unlikely that inflation, as measured by the consumer price index, will rear its ugly head anytime soon. Low inflation — or outright deflation — means that interest rates are likely to remain low. The Federal Reserve, which is tasked with keeping inflation low, will have little reason to raise interest rates if there’s no threat from inflation. If you’re looking for a boost in your bank CD rate, you’re not going to see one this month — or for several months.

“Much depends on whether the Fed wants to wait to see wage growth rising before it raises rates or whether it just puts its trust in the normal relationship between wages and unemployment,” says Paul Dales, senior U.S. economist at Capital Economics. “At the moment, wage growth remains muted.” Companies have used skimpy wages as a way to increase their bottom lines, and that doesn’t show any sign of abating. That’s good for stock investors. As the unemployment rate goes down, however, companies will eventually have to start bidding for talent — and that could crimp earnings.

But the U.S. added 2.9 million jobs in November, the largest since 1999, and the total unemployment rate — all unemployed for all reasons as a percentage of the total labor force — has fallen to 11.2%, the lowest since September 2008. That’s unalloyed good news. Even if employees get raises, increased demand should lead to higher corporate earnings.