US NFP: What keeps wage inflation low? - NBF

Krishen Rangasamy, analyst at National Bank of Canada, points out that several sectors are restraining wage inflation in the US. 

Key Quotes:

“U.S. employment reports were mixed in April. The establishment survey showed non-farm payrolls rising 164K and a 30K upward revision to the prior month, which together matched consensus expectations.”

“The jobless rate fell two ticks from 4.1% to 3.9%, the lowest since April 2000, but that was largely due to a drop in the participation rate.”

“The weakest diffusion index in three months (which suggests job gains were not broad-based), the drop in the participation rate, and stagnant wage inflation would not have pleased Fed members who are counting on higher wages to sustain a push towards an overall inflation rate of 2%.”

“Five of the eight broad industries, representing about half of private sector payrolls, are seeing annual wage growth below that of last year. “Right to work” legislation and automation could explain weak wage growth in manufacturing, while low wage inflation in leisure/hospitality should not be surprising because this industry tends to use workers with relatively low skills and hence little bargaining power.”