One reason for the market's hissy fit? Tight labor conditions, as indicated by February 2018's 4.1% unemployment rate, the lowest it's been in almost two decades.
That 4.1% unemployment rate is deceptive because both the civilian labor force participation rate (LFPR) and the civilian employment population ratio (EPR) have gone down substantially. Both indicators are nowhere near their pre-recession peak in 2007 and are even further away from their all-time highs during the peak of the tech bubble in 2000.
Some experts have blamed the declines in LFPR as structural, i.e. due to an aging work force. However, the LFPRs for people past the prime working age (55 years and over) has largely held up since the recession.
In fact, the LFPR for those truly at the retirement age (65 years and older) has only gone up.
This indicates that there is a lot of slack in the market for labor. A lot of slack.
If the 2017 LFPR had reached their pre-recession peak of 65.7%, the US would have roughly 8 million more workers in the labor force than it has now.
If the 2017 EPR had reached their pre-recession peak of 59.40%, the US would have roughly 7.3 million more people employed than it has now.
It will take a long time for this slack to be reduced. The LFPR only bottomed out to 62.40% in 2015 and has climbed only 0.10% every year since then. Thus, it will take a staggering 31 years to cover the 3.10% gap in the LFPR. The 1.80% gap in EPRs will be covered in a much shorter time frame: only 4.5 years, because the annual gain in EPR is a more robust 0.40%.
Therefore the US is nowhere near wage inflation.
