While it may seem as though the economy and labor market are currently in optimal position, with a steady unemployment rate of 4.1% and the addition of 220,000 jobs in November alone, what goes up has to ultimately come down. This notion is further amplified by the fact that wage growth still remains low.
"It's a really, really strong economy," said Tom Gimbel, chief executive of LaSalle Network, a staffing firm in Chicago. "Companies really want to take advantage of the economy, so they want to hire and get while the getting's good."
However, the problem with this accelerated hiring is that pairing such growth with another stimulus, such as the impending tax overhaul, could lead to the economy growing too quickly, inducing inflationary pressure and forcing the Fed to increase interest rates earlier than planned.
According to Peter Boockvar, "This gives us a 3-month average monthly job gain of 170k, a 6-month average of 178k, and a year-to-date average of 174k. These numbers compare with average job growth of 187k in 2016, 226k in 2015, and 250k in 2014. Again, the slowdown in job creation is a natural outgrowth of the stage of the economic cycle we are in where it gets more and more difficult finding the right supply of labor."
Essentially, this implies that the velocity of money is slowing, and therefore employers cannot afford to increase wages for workers. This would mean that while the overall picture is improving as more people have a steady stream of income, individual standards of living and income levels will not change by much.
As per Catherine Barrera, chief economist of the online job site ZipRecruiter, wages may pick up when workers acquire the confidence to rally for raises, and to transfer jobs if they do not get them. There are signs that could be happening. Nearly 9.5 million workers quit their jobs voluntarily in the third quarter, the highest level since 2001.
"If people are feeling really confident and comfortable with the labor market, they're going to be more likely to seek that next opportunity," Ms. Barrera said. "When we see that type of confidence, that's when wages will grow."
It also seems as though there is significant growth among small businesses, which could be an important growth marker for the future as these businesses will then expand. Payroll provider ADP said its small business customers, or those with up to 49 employees, added a moderate 50,000 jobs in November. The National Federation of Independent Business, which surveys the small business owners who are its members, said more than half the owners it spoke to had hired, or tried to hire, last month.
However, the situation need not involve a direct trade off between wage growth, unemployment, and growth: "You could be looking at a combination in the summer of stronger growth, unemployment at 3.5 percent and still falling, and wage growth picking up as well," said Ian Shepherdson, chief economist for the forecasting firm Pantheon Macroeconomics. "That requires a fairly substantial adjustment to markets."