Several weeks ago, the media was reporting that economists didn’t think that the economy did well in the 4th quarter of 2014. Despite resistance to the idea, however, the U.S. economy is growing while creating new jobs and higher wages.

As the reports on the 4th quarter have come in, they have indicated that these economists were wrong. The reported growth in GDP for the quarter was 3.2%. Not that bad. Based on past experience, this rate of growth will likely be raised. Remember that the initial report at the end of the 3rd quarter showed that the GDP grew by 3.2%; however, after two revisions, it turned out the economy grew by 5%. At the beginning of 2014, very few economists were predicting the level of growth that was reached during the year. True, the first quarter of the year was disappointing, with weather conditions across the country impacting consumer spending, manufacturing production and sharply rising fuel prices.

The Labor Department reported today that U.S. non-farm payrolls grew by a seasonally adjusted 257,000 jobs in January. This job growth is considerably higher than the 237,000 that had been predicted by a Wall Street Journal poll of economists. At the same time, the Labor Department reported revised job growth for November and December of an additional 147,000 jobs, with November’s reading of 423,000 being the strongest month since 1997 of private-sector hiring.

With strong job growth you’d expect the unemployment rate to drop. It did not. The unemployment rate in January rose to 5.7% from the 5.6% of December. Why? Because more unemployed people began going back into the job market as confidence in getting a job grew. At the same time, salary growth has occurred. The real wages for employees rose by 2.2% in 2014 with a rise of 12 cents an hour in January. The average hourly earnings for workers in the private sector grew to $24.75 per hour.

Job growth, more people looking for work and higher wages are all signs of a growing economy with little slack in the labor pool. This is all indeed good news. There will certainly be bumps along the way but the U.S. economy seems to be regaining its strength.

Ed Mallon
February 6, 2015