Full employment will boost US wage growth

Significance

The jobless rate is expected to stay unchanged at 4.9%, its lowest level since November 2007. This decline occurred despite a rebound in the participation rate, up 0.5 percentage points (pp) since September and back to its January 2015 level. Labour market behaviour will be a key determinant of the Federal Reserve (Fed)'s pace of monetary policy tightening this year.

Impacts

• Higher cyclical unemployment may become structural through 'hysteresis', as job seekers become discouraged and stop looking for jobs.
• Structural declines in the participation rate may be one way in which 'secular stagnation' manifests in post-crisis economies.
• The Fed will monitor closely any overheating risk in the labour market, together with escalating wage and price pressures.