Unemployment Rate Drops to 5.5% but Wages Lag

The addition of jobs to the market has improved even more for the month of February, but wages are continuing to disappoint. The majority of jobs added to the market was hiring in business services and leisure & hospitality. Employers added 295,000 jobs last month, and subsequently, the unemployment rate decreased to 5.5% - the lowest in almost 7 years. Therefore, the jobless rate is now in the Federal Reserve's range for what it declares full employment. This will keep policy makers on track to raise interest rates this year, as persistent job growth encourages an increase in wages. Stocks declined as investors saw the decline in unemployment as an indication of the government raising interest rates for the first time since 2006.

Average hourly earnings rose 0.1%, and the median forecast expects for an increase of 0.2% this month. Over the past year, hourly earnings increased 2%, which was less than expected. Michael Gapen, chief U.S. economist at Barclays Plc in New York, stated, "Fed guidance on rate hikes has centered on the expectation that ongoing improvement in labor market condition would support wage growth and services inflation over time." Federal policy makers are closely monitoring worker pay as they develop a timetable for their first increase in borrowing costs since 2006.

Companies are being pressured to attract and retain their employees. For example, Wal-Mart announced that it will be begin paying all of its U.S. hourly workers (approximately 500,000) at least $9/hour by April, and by next February $10/hour.

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