Strong job growth continued in the final quarter of 2018 for many of the world’s leading economies. While some countries had notable wage increases, this was not the case for all economies. Tight labor markets continued to present a challenge for employers in their attempt to attract and retain talent with high levels of job openings and low unemployment.
Strong Job Markets Across Most Leading Economies
In the United States, the fourth quarter ended with an unemployment rate of just 3.9% with the increase over previous months caused by more Americans joining the labor force. The December 2018 jobs report showed that 312,000 jobs were added in the final month of the year and the reaction from some economists was nothing short of jubilation. As the New York Times reported, “Economists offered raves that could appear on a movie poster or a book jacket — “Extraordinary!” “Blowout,” “Wow!”
Other major economies including the UK, China, Japan and Germany all posted unemployment rates of less than 5% during the quarter, as did smaller economies like Poland and New Zealand. Unemployment in Australia and Canada remained at or near historic lows. In contrast, unemployment in India rose to a 27 month high of 7.38% in December when a decrease in the labor force was also reported. The Eurozone seasonally-adjusted unemployment rate was 7.9% in November 2018, the lowest rate recorded in the region since October 2008. Unemployment rates in Southern Europe continued to be comparatively high, especially in youth unemployment. The youth unemployment rate was over 30% in Spain, Italy and Greece during the quarter.
Healthy Wage Growth for Some, Slowing Growth for Others
The United States ended the year posting an annual wage increase of 3.2%, well ahead of the rate of inflation. While wage statistics have yet to be reported for all of Q4 in the UK, the quarter started with basic wage growth accelerating to a 10 year high at 3.3%. Wage increases in the UK were especially noteworthy since inflation fell to its lowest level in nearly two years at the end of 2018. Wage data for Q4 has yet to be released for Australia, but it entered the quarter having posted the highest rate of wage increases in three years. The rise in wages in these economies comes as no surprise since low unemployment often leads to higher salaries because employers have to compete for decreased pools of available talent.
This economic paradigm did not hold for all economies. In Canada, wage growth decelerated during the fourth quarter. Commenting on the final Canadian jobs report of 2018, Global News noted:
“But even in a tightened job market the latest labour force survey shows wage growth delivered another weak reading in December of 1.49% — which is well below inflation. Year-over-year average hourly wage growth for permanent employees was 1.46% in November – and it has decelerated steadily since its May peak of 3.9%.”
Completing a Year of Growth and Uncertainty
While economic growth continued for most developed economies in Q4, important events that unfolded during the quarter contribute to a sense of uncertainty entering into 2019:
- The signing of the new U.S.-Mexico-Canada (USMCA) Trade Agreement to replace the North America Free Trade Agreement (NAFTA). Although this agreement was signed by the heads of the three nations involved, legislatures have yet to ratify the agreement and constituencies within each country are lobbying to change components of the accord, contributing to a lack of clarity of what the final agreement will look like.
- A Brexit deal agreed to by the EU and Prime Minister Theresa May failed miserably in the House of Commons. The year ended with no clear plan on how the UK would leave the European Union, scheduled for March 2019.
- Trade disputes between the U.S. and China, the world’s two largest economies, remained substantially unresolved and led in part to extreme volatilities in the financial markets at the end of the year.
- The U.S. government began what would become the longest shut-down in its history, impacting over 800,000 workers and potentially threatening the nation’s economic expansion and continued job growth.
Some economists are expressing concern. CNN Business reports:
“Trade wars. Recession fears. Market mayhem. Oil turbulence. Brexit. And the longest government shutdown ever. Around nearly every corner, crucial question marks are looming over the business world right now. Will the U.S. economy grow at 3% in 2019 or succumb to a recession? Will the United Kingdom be in or out of the European Union? Will the Fed raise rates twice or not at all? Taken together, these forces appear to be driving up uncertainty to elevated levels. That backdrop makes it tricky for businesses, households and investors to plan for the future. The risk is that poor visibility causes companies to rein in spending, further delaying the investment boom that the U.S. tax overhaul was supposed to spark.
‘We are in an uncertain environment on the policy front and the economic front — and that spills over into the corporate front,’ said Erin Browne, a managing director and portfolio manager at PIMCO. In some ways, a murky outlook is common as economic expansions age and the next recession begins to take shape on the horizon.
‘As you move towards late cycle, the level of uncertainty increases. And the level of volatility around economic outcomes also increases,’ Browne said… The risk is that extreme uncertainty becomes a self-fulfilling prophecy, speeding the arrival of the next downturn by causing business and consumer spending to dry up.
‘It’s inevitable we will get a recession in the next few years. The question is timing,’ said Browne. ‘This could pull forward the onset of the next recession.’”
Global Economy Watch by Price Waterhouse Coopers predicted that in 2019:
“Workers and wages will come to the fore. Labour markets in advanced economies are likely to continue to tighten, even if job creation slows. This may push up wages, but cause problems for businesses looking to fill talent shortages. In 2019 we expect unemployment rates to fall a little further in the U.S. and Germany, where the rates of job creation have remained strong. But many other economies could show evidence of hitting structural floors… We expect trade wars to continue in 2019. This is likely to generate further uncertainty for policymakers and businesses.”