A short break in my aforementioned schedule has emerged, so why not use it to briefly review two new important clues from last Wednesday on the status of the U.S. economy – the latest inflation-adjusted wages data, and the similarly price-adjusted manufacturing production numbers? They’re worth noting because, although the economics world’s conventional wisdom seems to be concluding that the historically sluggish American recovery that began in mid-2009 is finally reaching a more respectable pace, these new numbers seem to be saying, “Not so fast.”
The main bright orange flag was waved by those real wage figures, which bring the story up to January, and which incorporate revisions going back to January, 2012. Their main message to me? The nation is now firmly stuck in a wage recession. That is, after-inflation wages have been down on net for at least two straight quarters. In fact, they’re 0.19 percent lower than they were last February – a span of eleven months.
A big reason is that in January, real wages fell on month by 0.47 percent in the private sector. (The real wage data don’t track pay in the public sector, since those levels are set largely by government fiat, not market forces.) That’s their worst such performance since August, 2012, when they sank by 0.58 percent sequentially.
And year-on-year, constant dollar wages were flat in January – the worst such change since June, 2014, when they were also flat on year. Between January, 2015 and January, 2016, by contrast, real wages rose by 1.04 percent. And during the entirety of this economic recovery – which is now more than seven years old, inflation-adjusted wages have advanced by only 3.30 percent.
The picture in manufacturing was comparably dismal. It’s mired in a wage recession, too, as inflation-adjusted pay is down 0.28 percent since last April. I’d say that January’s monthly performance was especially bad (down 0.46 percent). But it actually beat the new December figure (down 0.64 percent). And just as with overall private sector real wages, you’d have to go back to August, 2012 to find a bigger monthly drop (0.76 percent).
Year-on-year, real wages did rise in January – by 0.37 percent. But that rate was the slowest since November, 2014 (0.19 percent) and was much worse than the 1.22 percent improvement registered during the previous two Januarys. And since the current recovery’s June, 2009 onset, real manufacturing wages have inched up only 0.75 percent.
These new January figures are still preliminary, so they’ll be revised yet again in subsequent months. But it’s hard to square the phrase “wage recession” with the idea of a healthy economy or labor market.
The manufacturing production numbers that also came out Wednesday morning were better, but anything but stellar. And they were strange enough to leave a data geek scratching his or her head. The main reason? The automotive sector, which has led the domestic manufacturing sector out of its worst tailspin since the Great Depression, was a January real output laggard – and has been for the last three months. Largely as a result, so was the entire durable goods super-sector, which grew more slowly for a change than its non-durables counterpart.
Overall after-inflation manufacturing output in January was up 0.22 percent on a monthly basis – nothing unusual, but at least enough to keep the sector leaving behind the recession it endured from November, 2014 through last September. Revisions were positive, too, with November’s 0.14 percent sequential output dip marked up to a 0.04 percent increase, and December’s month-on-month improvement upgraded from 0.17 percent to 0.26 percent.
Oddly, however, constant dollar production of motor vehicles and parts combined decreased by 2.90 percent on month in January – the biggest such fall-off since last May’s 4.77 percent. In addition, the decline was led by vehicles, where real output plunged by 4.67 percent – the biggest such plummet since last May’s 6.98 percent. In fact, that was the second sequential drop in after-inflation vehicle production in the last three months. Auto parts has experienced a similar slump, but in January, real output was off by only 1.72 percent.
To give you an idea of just how unusual this latest trend has been, since the last recession began at the end of 2007, real manufacturing output is down 3.56 percent. Take away the automotive sector, and the downturn has been more than twice as bad – 7.60 percent.
An optimist could say that manufacturing is finally reducing its dependence on vehicle and parts production for respectable production performance. A pessimist could say that trouble in automotive is likely to foreshadow further weakness in the rest of manufacturing. I’ll stay agnostic on this count. What seems clearer from the new manufacturing and wages figures, however, is that more than seven years after the current weak recovery began, the jury is still out as to whether it will or can escape the frustrating stop-go pattern it’s exhibited so far.