Americans Still Waiting for Right Paychecks

Despite a mostly solid run of job growth, 2017 ends pretty much where it began—with a two-speed economy where wage growth is funneling to one end while the other lags behind.

Friday’s nonfarm payrolls report brought with it news all too familiar to the post-crisis economy. The 228,000 jobs created formed a solid foundation, but the pedestrian 2.5% average hourly earnings growth left many scratching their heads wondering how a 4.1% unemployment rate, the lowest in 17 years, still wasn’t producing fatter paychecks, CNBC reported.

“The lack of wage growth at the aggregate level despite the declines in the unemployment rate and strong job gains remains a mystery,” Joseph Song, US economist at Bank of America Merrill Lynch, said in a note to clients.

“One possible explanation is that structural factors such as unfavorable demographics and industry-specific dynamics are playing a bigger role than the cyclical factors,” he added. “However, we continue to believe that a falling unemployment rate will ultimately underpin wages.”

The latter part of that statement represents the hopes and frustrations of economists everywhere from academia to Wall Street to the halls of the Federal Reserve in Washington, D.C.

With another month of strong job gains and ho-hum wage growth under its belt, 2017 is now yielding toward predictions—again—that the year ahead will finally be the one where income catches up.

“Due to a lack of available workers and sustained improvement in aggregate demand we expect wage pressures to be the primary economic narrative during the year,” said Joe Brusuelas, chief economist at RSM. “Our forecast implies that wage growth during final three months of next year should be at or near 4%.”

No less than Gary Cohn, director of the White House’s National Economic Council, was banging the same drum Friday morning after the jobs report hit. “As the economy continues to grow and we bring more businesses back to America, we’ll create more competition for labor so we’ll continue to see more wage growth over the next cycle,” Cohn said on CNBC’s “Squawk on the Street.”

It might not be that simple. The (President Donald) Trump administration sees one of the answers to the wage puzzle as simply providing more supply of business demand against a shrinking pool of workers.

But American business is faced with a unique challenge in that employers are having a hard time finding the right workers for the positions they have open.