E The US Job Market Should Be Overheating. Why Not?

The latest job numbers for September suggest that the American job market is still very  strong. Based on the household survey, the unemployment rate fell to 3.7% in September from 3.9% in August, the lowest rate since December 1969 when many working-age Americans were serving in Vietnam.

Although the September non-farm sector payrolls were much weaker than expected, monthly gyrations in the data do not obscure the fact that the job market is very strong.

Non-farm payrolls increased by 134,000 in September, and over the past three months have expanded at an average of 190,000 per month. There were rather large up scale revisions to the July and August figures, and much of the revision was because of the one-time effects of Hurricane Florence.

The U6 unemployment rate, which accounts for unemployed and underemployed workers, rose to 7.5% in September versus 7.4% in August.

More significantly, strong hiring has not yet translated into strong wage gains for most workers. Average hourly earnings rose 2.8% in September from a year earlier, down from 2.9% in August and well below the growth that economists would usually expect with a 3.7% unemployment rate.

The important question that policymakers ponder is, when will wages start escalating and begin to outpace the rate of inflation?

Ironically, the September job market data underscores that the unemployment rate fell without wage growth accelerating, suggesting that significant wage acceleration is not around the corner.