Whew, what to make of this rollicking market. Although we have a good idea what happens next.
No, no, not the stock market. We learned all we need to know about those gyrations a few years ago from Albert “Ab” Nicholas, founder of the Nicholas investment company in Milwaukee. Nicholas, now deceased, advised thinking long-term rather than paying attention to Wall Street’s conniptions. “Two-thirds of the time, stocks are going up,” Nicholas said, approximately. “One-third of the time, they’re going down. Don’t try to guess which third is which.”
No, the number that animates us today is over in the employment market: The Labor Department reports that in January, wages for private-sector workers were 2.9 percent higher than a year earlier. That’s the biggest year-over-year increase since the end of the Great Recession in mid-2009.
If this isn’t a blip, it’s excellent news. For most of the long but lazy recovery from that recession, Americans haven’t seen much in the way of wage increases. It’s hard to distinguish causes from effects, but: The U.S. economy was growing slowly, employers didn’t have to raise wages to retain their employees, and those workers didn’t have new infusions of income to drive consumer demand for the goods and services employers make or provide.
Now, though, the cycle looks more virtuous. If it keeps up, so will the faster economic growth of the past year.
Consider these data points: The nation’s unemployment rate has fallen to 4.1 percent — the lowest level since 2000 — and held steady for four months. Creation of 200,000 jobs in January — 98 percent of them in the private sector — suggests that the U.S. economy continues to expand. And in a development that deserves more attention, the Social Security Disability Insurance rolls are shrinking. During a weak job market, more people sign up for SSDI benefits; now, though, the number of SSDI applications is falling, and the number of people leaving the program is increasing.
All of which suggests that, after a slow-mo decade, America’s employment market is healthy again. So employers are boosting wages. Blip? Probably not. The Labor Department revised its December measure of wage growth upward, and its January number came in higher than expected. Oh — and the wage growth numbers don’t yet include the impacts of federal income tax cuts. Nor do they include the bonuses some large employers have announced for their workers.
Insert here your preferred political narrative. The Democratic mantra is that former President Barack Obama deserves credit for an employment market that was improving before he left office. The Republican retort is that Obama would deserve the credit if President Donald Trump were continuing Obama’s policies, but the recovery didn’t escalate until Trump’s election presaged tax cuts and the elimination of many business regulations. Or you instead could conclude that presidents get too much blame and credit for economic trends on their watch.
If this cycle really is virtuous, then employers will have to keep paying higher wages to hire and keep workers. Those workers will have more money to spend. And that rising consumer demand for goods and services will force employers to, yes, compete with one another to hire and keep workers.
So you can understand why many economists expect wage growth to continue in the employment market this year.
And you can understand why those other markets — investment markets — fear that resulting inflation will undercut the value of stocks and bonds. Hence selloffs like Monday’s.
What should you do? Trust Ab Nicholas: “Don’t try to guess which third is which.”
This editorial was written by the staff of the Chicago Tribune, It does not necessarily reflect the opinion of the The Lima News editorial board or AIM Media, owner of The Lima News.