Lower initial jobless claims and a lower unemployment rate, as well as still-solid payroll increases, support further gains in the U.S. labor market and economic growth, according to Wells Fargo Investment Institute’s weekly guidance, released Tuesday.

The labor market, currently at its strongest level in decades, buttresses continued household spending that is driving the U.S. economy, Wells Fargo investment strategy analyst Craig Holke wrote in the guidance.

“We expect this trend to continue as both U.S. and global growth remain steady,” Holke said.

He noted that early September jobless claims fell below expectations at 203,000, and continuing claims stood at 1.7 million — the two figures at their lowest levels since 1969 and 1973. More impressive still, the American labor force has grown from some 91 million workers in 1973 to approximately 162 million today.

Why, then, do workers continue to experience slow wage growth?

According to Holke, productivity and wages have lagged even as the employment portion of the labor market has remained robust. Growth in productivity — a measure of how much output a given unit of labor can produce — is at its lowest level since the early 1990s, directly affecting wage growth.

“We believe wage growth at this point in the cycle should be higher,” he wrote. He said given that the unemployment rate is currently holding at 3.9%, wage growth should be closer to 4%, whereas it recently increased to 2.9%.

If the current upward trend in productivity continues, that may signal faster wage growth in the future, he said.

Holke opined that wage growth at current levels was good for U.S. equities. As it approaches 3.5%, it will start to push up costs for corporations and eat up a larger share of earnings.

He said moderate inflation and wage growth should keep the Federal Reserve on track for its current trajectory of rate increases, which should not threaten continued economic growth in the near term.

Overall, he wrote, the labor market is strong and likely to remain so in the foreseeable future, but eventually the cycle will approach an end. “In the meantime, having the largest number of working Americans in history with steady wage growth is not a bad problem to have.”

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