NEW YORK (TheStreet) -- Today's jobs report -- especially the strong wage growth number -- might entice the Federal Reserve to raise interest rates as early as June, but the directors should take a closer look at the numbers first. (Read more: Detailed analysis of the latest jobs numbers.)
Temporary factors likely inflated the gain in average hourly earnings in January. Wage pressures aren't building as much as it appears. Increasing wage pressure would help inflation return to the Fed's target and strengthen their case to tighten monetary policy in June but the jury is still out.
The average hourly earnings rise of 0.5% for all private workers in January is, in part, payback for December's revised 0.2% decline (previously 0.3%). January's gain is noticeably better than the 0.2% average monthly gain since the recession ended in mid-2009, but it leaves earnings up only 2.2% on a year-ago basis. This is hardly impressive. Also, the new employment data suggest productivity won't be very strong in the first quarter after falling in the final three months of the year. The weak trend in productivity normally means weak income growth as wages reflect the marginal product of labor.
Further, last month, 19 states raised the minimum wage, but it's difficult to quantify how much this added to average hourly earnings growth. Wage growth accelerated from December to January in industries with the highest proportion of workers earning the minimum wage, including retail and leisure/hospitality. The 1.1% gain in retail average hourly earnings was the largest since the inception of the series in 2007. (Read more: Detailed U.S. economic outlook.)
The January wage data are likely not enough evidence for the Fed to be comfortable dropping its "patient" pledge at the March Federal Open Market Committee meeting, which is a prerequisite for a June rate hike. In the end, wage pressures remain tame giving the Fed breathing room to allow the economy to run hot for a while longer. We believe it will be a close call between raising rates in June and September but the central bank should err on the side of caution. The January employment report adds fuel to this debate and the only thing the new employment data does is significantly lower the odds the Fed waits until 2016 to begin raising rates.
Read Ryan on Moody's Analytics Dismal Scientist.