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Wages Rise in December but Trail Job Growth

Posted by Joseph Trevisani on Jan 6, 2017 8:54:05 PM

American workers saw their best annual wage increase since the recession as the three year run of job creation may be  finally forcing employers to improve compensation, even though the amount of the income gains remain well below pre-crash levels.

 Average hourly earnings jumped 2.9 percent over the 12 months to December, up from 2.5 percent in November, reported the Labor Department in Washington on Friday. It was the largest monthly increase since June 2009, the month the recession ended.  A gain of 2.8 percent had been forecast. 

The economy added 156,000 workers in December after a 204,000 increase in November that was 26,000 more than initially estimated.  Economists had predicted a gain of 175,000.  

The unemployment rate ticked up 0.1 percent to 4.7 percent.  The labor force participation rate rose to 62.7 percent in December from 62.6 the prior month, remaining close to the generational low of 62.4 percent reached in September 2015.

Over the last three years the economy has created an average of 220,000 new positions each month. From a high of 251,000 in 2014, to 229,000 in 2015 and 180,000 last year.  This was the best three year period in over sixteen years. The labor market averaged 227,000 new jobs a month in 1998, 1999 and 2000. 

Since the beginning of 2014 average hourly earnings have increased 2.3 percent a year with the gains gradually rising as the period progressed, reaching their high of 2.7 percent in the last six months of 2016. This relatively weak wage growth came despite the almost two decade record in job creation. 

The question for analysts is that despite the recent gains in wages as measured by average hourly earnings and personal income, the annual improvement in compensation in considerably less than in previous periods of strong job creation.

One comparison would be to the average annual hourly earnings increase in the 22 months from March 2007 until December 2008.  This particular wage statistic is relatively new and begins that March.  However, the peculiar economic circumstance of years from the peak of the housing bubble in 2005 to the end of the recession in 2009 make the contrast somewhat unhelpful.  Wage increases look backward to the relatively prosperous first half of the decade and the job numbers look forward to the catastrophic second half.

Even so in those 22 months the annual increase in wages averaged 3.2 percent. But the labor market was actually losing jobs, averaging -125,000 per month. Hiring had slipped below zero in February 2008 as the economy tipped further into recession and plunged in the second half of 2008 as the financial crisis took hold. Even the 10 months from March 2007 to the end of the year averaged just 82,000 new positions as the labor market was clearly reading the pending collapse in the U.S. economy. 

A better comparison lies in the difference in the personal income numbers across the two disparate three year periods, 1998-2000 and 2014-2016.

Personal income statistics from the Bureau of Economic Analysis, a division of the Commerce Department, track all income received by households, including wages and salaries, investment and rental income and transfer payments.  Monthly statistics begin in January 1960 and are not adjusted for inflation. 

In the earlier three year stretch from January 1998 through December 2000 the economy created an average of 227,000 new jobs each month.  Personal income grew at an average annual rate of 6.9 percent through the 36 months.   

In the latter period of January 2014 through December 2016, U.S. employers hired an almost identical average of 220,000 new workers each month yet personal income grew just 4.4 percent annually, only 64 percent of the income accretion of the earlier period. 

The problem for U.S. workers since the recession is not the number of job created but the type of employment.  Last month well more than half of the 156,000 new jobs were in low paying or part time fields. The Labor Department counts any hire, whether full-time, part-time or temporary as a new job for the payroll statistics.  

In December 'health care and social assistance' workers increased 63,300, 'leisure and hospitality’ firms added 24,000 and 'administrative and waste services to building and dwelling’ (read janitors and building staff) hired another 10,600.

These three groups of new employees alone totaled 97,900, 63 percent of the hires in December.  Unfortunately for the American worker this skew in job creation is typical of the new employment throughout the seven year recovery.

Until the U.S. economy begins to create many more jobs in higher paying fields the majority of U.S. workers are likely to remain unsatisfied with their economic progress, no matter what is happening in Silicon Valley, Manhattan and Chicago. 

 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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