What the improving U.S. jobs picture means

Before another “wow” monthly employment report was released Friday, we knew the U.S. economy was capable of generating lots of jobs as it recovered from the loss of 8 million caused by the global financial crisis.

What we didn’t know, however, was the answer to the “wage puzzle” – whether, when and how wage growth would break out from a prolonged period of sluggishness that, unusually, has coincided with rapid employment creation (including 3.1 million new jobs last year, the strongest performance since 1999). This remains an important question for the economy, as well as the outlook for inequality and Federal Reserve policy.

The data released Friday morning confirmed the job-creation machine remains robust. A total of 257,000 new jobs were generated in January, exceeding consensus market expectations. Moreover, the two previous months’ additions were revised up by 147,000. And while the unemployment rate rose, to 5.7 percent, it did so for a good reason: The participation rate improved as more people re-entered the labor market.

Importantly, the good news wasn’t limited to the economy’s continued ability to create jobs. There also was an encouraging increase in hourly earnings in January, the biggest since November 2008. Should it endure, it would point to broadening labor market improvements and – finally – much better prospects for Main Street.

As for the broader implications, here are four issues to keep in mind:

Mohamed El-Erian is chief economic adviser at Allianz, chairman of President Obama’s Global Development Council and the former chief executive officer and co-chief investment officer of Pimco.