November US jobs data confirmed the robustness of labor market:Disappointing wage growth could dampen the inflation outlook

Overall, November jobs data remained strong and was better than expected. Most sectors showed solid job creations on the month, and unemployment rate stayed at the lowest level since 2001. However, wage growth was the only disappointing reading, which could dampen the inflation outlook.

    Specifically, all of the major categories showed notable job creations: the well paid professional and business services jobs and healthcare jobs remained solid, while manufacturing and construction jobs also added significant jobs on the month. Such strong performance demonstrated that the drags from hurricanes have mostly faded out, and as we have repeatedly stated, the US job market is near full employment.

    However, the disappointing note was that the weak wage growth continued to persist, which could be a big reason behind inflation undershooting forecasts. Low productivity growth, shifting workforce composition, and weaker workers’ bargaining power all contributed to the slower wage growth. As we have consistently reiterated, job market performance has become somewhat secondary to inflation measures recently in the Fed’s short-term decision making process, as the job market has already recovered to a strong enough level to support rate hikes. Thus, looking forward, inflation is the key to decide the Fed’s tightening trajectory, and subdued wage growth will dampen the outlook of inflation. If wages do not pick up in 2018, the Fed may undershoot its forecasted policy tightening trajectory.