Although the unemployment rate ticked lower, wage growth remained sluggish due to temporary effects of the hurricane season as well as long-term factors.

The U.S. economy expanded at an annualized rate of 3% in the third quarter — a bit of a surprise and higher than consensus expectations. However, this first estimate of GDP is subject to large revisions. The overall data flow continues to look good even as the impact of the hurricanes, mainly in Texas and Florida, complicates the interpretation of the data. The PMIs look consistent with solid growth, and auto sales had a second strong month after falling steadily earlier in the year. The labor market is also holding up well. While total job creation was a bit below expectations, and there was a disappointment in the earning numbers, the unemployment rate dropped. It’s clear from the details that overall demand for labor remains good.

Weakness in wages

However, what’s going on with wages is another story. The weakness in wage growth in October's report is partly unwinding the hurricane effects from September; low-paid service sector workers disappeared from payrolls in the immediate aftermath of the hurricanes, pushing average wages up, and when they returned to work, average wages declined. But the hurricane effect isn’t all that large and isn’t big enough to be a full explanation. As measured by the Atlanta Fed, wages are rising in the way one would expect from looking at the quit rate.

A lot of the jobs being created are low-wage jobs.

This wage tracker measures the nominal wage growth of individuals. It is constructed using microdata from the Current Population Survey, and is the median percent change in the hourly wage of individuals observed 12 months apart. It measures wages for established workers in their jobs for at least a year. The average hourly earnings measure, on the other hand, is the total wage bill divided by the total number of hours worked. It’s weaker because a lot of the jobs being created are low-wage jobs, or at least are paying lower wages than those earned by retiring baby boomers. In other words, while demand for labor remains strong, upward pressure on wages is lagging.

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October marked another month of global expansion, and financial markets remained upbeat against a backdrop of low inflation.