Five percent is as important a number to the job market as 20 wins is to a Major League Baseball pitcher or 1,000 yards in a season is to an NFL running back. They mark the standard of top performers.
A 5 percent unemployment rate means everyone who wants a job has a job (with a little mathematical wiggle room). Given this generally accepted measurement, the American job market has been at or near full employment for almost a year.
In the week ahead, investors will learn if so much working is finally leading to higher wages. On Friday, the December employment report will be released. With an unemployment rate at 5.1 percent or less for four months in a row, paychecks have been rising, and rising faster as 2015 wore on.
In November, the average hourly earnings for an American worker jumped 2.3 percent compared to a year earlier. It’s the biggest annual pay hike in more than six years. That trend is expected to have continued in December. It’s predicted to pick up speed throughout the year ahead.
For many workers in the thick of their careers, it may already be better. As Moody’s economist Mark Zandi pointed out recently, “Measured wage growth is being depressed as many lower-paid millennials are coming into the workforce, while higher-paid boomers are leaving it.”
Why should investors watch the paychecks of others? Obviously, more income can lead to more spending, helping boost corporate profits. But also a quick and sustained pickup in pay will give the Federal Reserve more room to raise interest rates, potentially faster than anticipated right now.
Financial journalist Tom Hudson hosts The Sunshine Economy on WLRN-FM in Miami. Follow him on Twitter @HudsonsView.