Job Growth Remains Solid, But Labor Costs Raise Inflation Threats


U.S. job growth remained solid for the third straight month in February, as U.S. employers added a larger-than-expected 227,000 jobs. Although, the unemployment rate was unchanged at 8.3%, last month’s figures marked the first time since the beginning of last year that payrolls had grown by more than 200,000 for three consecutive months.

Furthermore, the Labor Department revised December’s jobs numbers up to 223,000 from 203,000, and revised January’s numbers up to 284,000 from 243,000.

Although this is good news, NACM Economist Chris Kuehl, PhD noted that there could be a less-talked-about downside to an ongoing trend of employment growth. “There really is no such thing as an unbridled piece of good news in the world of economics,” he said. “There are always trade-offs of one kind or another.”

In this case, the trade off comes with inflation, as one of the factors that accelerates this threat is higher wages and gains in unit labor costs. “There is evidence that unit labor costs are rising—and more rapidly than would be preferred given the state of the overall economy,” said Kuehl. “The rate of core inflation has been holding pretty steady for the past year or so, but that could be challenged soon by the rise in unit labor costs.”

To wit, earlier this week the Labor Department issued productivity and costs statistics for the fourth quarter of 2011, noting that the rate of increase in unit labor costs was 2.8%, more than double the rate that had been registered the month before. “At this point the pace is exceeding the rate of core inflation,” said Kuehl, noting that this won’t make inflation threats any less benign. “As unit labor costs rise, they eat into the profits of companies and affect the core pricing of products across the board,” he added. “This is one of the inflation signals the hawks have been worried about.”

Jacob Barron, CICP, NACM staff writer

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