What's going on?
In the latest bit of relatively positive economic data, Friday’s US jobs report showed that many more workers were hired in February than expected.
What does this mean?
It’s another piece of evidence that the US economy is doing better than investors had feared just a few weeks ago – that’s good of course. But wage growth actually declined in February and that’s probably because there are a lot more people without jobs than the headline 4.9% unemployment rate suggests. Weirdly, that rate only includes people that both a) don’t have a job and b) are actively trying to find a job. It doesn’t count people that have given up looking for work. But as more jobs are created, those “forgotten unemployed” come off the sidelines and enter the workforce. There are still so many of them available that companies aren’t having to increase wages a lot in order to find new workers.
Why should I care?
For markets: It’s being called a “Goldilocks number.” If the data was really strong, it would make the US Federal Reserve (the “Fed”) more likely to increase interest rates. Really bad data would suggest that the economy might be worse than people think. But this number was “just right” – strong enough to suggest the economy is doing ok, but not so strong that the Fed becomes meaningfully more likely to raise interest rates as a result of it. Remember that raising interest rates creates somewhat of a headwind for the economy by making it more expensive for people and businesses to borrow (and then spend) money – so the Fed wants a fairly strong economy before it raises interest rates again.
For you personally: Wage growth is extremely important – and not just for you personally. The overall economy wants you to get paid more too: so you go out and spend your increased pay on doing and buying stuff. And that’s why the Fed is likely watching the data on wage growth closely – it doesn’t want to stifle wage growth because that would hurt the economy too much (remember, the economy is very dependent on the consumer, e.g. you, spending money).