The new year is beginning with some solid momentum after the recent gain in U.S. employers.
In December, a moderate boost of 148,000 jobs has already benefited the economy. The rate of unemployment has remained at a low 4.1 percent for three consecutive months, creating the lowest level since 2000, according to the Labor Department.
During 2017, employers created over 2 million jobs. This was enough to lower the unemployment rate from 4.7 percent from the previous year. However, the average employment gains have decreased to 171,000 in the new year from a peak of 250,000 in 2014. This trend usually occurs when the unemployment drops to an all time low and very few people are able to be hired.
While modest, the job gains underscore the economy’s continued health in its ninth year of recovery. The unemployment rate for African-Americans dropped to a record low of 6.8 percent.
Solid economic growth in both the United States and major countries overseas is supporting more hiring. Factory managers received the most new orders in December than in any month since 2004. Retailers have reported strong holiday sales. Builders are ramping up home construction to meet growing demand.
Sales of existing homes reached their fastest pace in nearly 11 years in November. Consumer confidence is at nearly a 17-year high. And the Dow Jones industrial average reached 25,000 for the first time on Thursday.
Most economists expect the Trump administration’s tax cuts to help speed the economy’s already decent pace of growth. Some envision the unemployment rate dropping as low as 3.5 percent by the end of 2018. A rate that low would mark the lowest such level in nearly a half-century, and it would likely force businesses to accelerate pay raises to attract and retain employees. Pay raises have remained puzzlingly sluggish for many U.S. workers despite the robust job market.
Some businesses, though, are already howling that they can’t find enough qualified people. There are roughly 6 million available jobs, near a record high, according to government data. Should unemployment fall to 3.5 percent, those complaints will intensify.
For at least two years, economists have been expecting the falling unemployment rate to boost wages. Though average hourly pay growth has picked up a bit, it remains about 1 percentage point below the 3.5 percent annual gain that typically occurs in a healthy economy.
Economists point to several trends that may be keeping a lid on wage gains.
As the vast baby boom generation ages — 10,000 of them are turning 65 every day — they are retiring and are being replaced by younger workers, who typically earn far less money. That is likely suppressing overall wage growth, economists say.
Worker pay also depends on productivity, or how efficient employees are. And productivity has been weak for roughly a decade.
In 2000, the last time the unemployment rate fell this low, wages were growing at a 4 percent annual pace. But productivity, which measures workers’ output per hour, was much higher then. A falling unemployment rate can force up pay, but rising productivity has a much greater effect.
Many businesses, meanwhile, feel they have limited ability to pass on higher wages to consumers in the form of higher prices. Online shopping and cheaper imported goods make it easier for consumers to find bargains. That leaves retailers and other firms reluctant to raise pay.