(What’s Left of) Our Economy: New U.S. Pay Figures Show a Recent Fade – Especially in Manufacturing

Tags

benefits, compensation, ECEC, employer costs, salaries, Trump, wages, {What's Left of) Our Economy

This morning the federal government released one of the more unusual takes on Americans’ pay that we regularly see – the latest quarterly report on “Employer Costs for Employee Compensation (ECEC).” It’s unusual because it measures not only wages and salaries, but non-wage benefits. And that’s something of a two-edged sword.

On the one hand, the ECEC series’ comprehensiveness provides a fuller picture of compensation trends in the U.S. labor market than the wage figures alone (which come out monthly, and therefore are somewhat more current). On the other, because it focuses (as per the name) on compensation from the employer’s end, it includes a great deal of info on practices that never translate into money in their workers’ pockets. After all, few if any workers realize the full value of their benefits packages.

The ECEC series presents analysts with another problem: the current-dollar data only go back to 2004. So it’s not possible to compare the economy’s performance on this front over similar phases of the various recent business cycles.

Even so, three important conclusions can be drawn from the latest data – which takes the story up to full-year 2018. First, they confirm what the wage statistics reveal about manufacturing being a compensation laggard during the current economic recovery compared with the rest of the private sector (I exclude government employee data from this post because compensation decisions in the public sector are set mainly by politicians’ decisions, as opposed to market forces. As a result, they say relatively little about the fundamental state of the economy.)

Second, they show that for both private sector (PS) workers as a whole and manufacturing workers, wages and salaries have been growing more slowly than benefits. And third, they show that increases in all these forms of compensation for both private sector and manufacturing workers slowed somewhat during the second year of the Trump administration, and that the improvement for manufacturing workers essentially halted the year before – and in some cases, shifted into reverse.

Here are figures for compensation cost changes for the duration of the current expansion – which began in mid-2009:

Total compensation for all PS workers:                     +24.18 percent

Total compensation for manufacturing workers:       +21.97 percent

Wages and salaries for all PS workers:                      +23.00 percent

Wages and salaries for manufacturing workers:        +20.59 percent

Total benefits for all PS workers:                              +27.18 percent

Total benefits for manufacturing workers:                +24.56 percent

If you do a little more math, you’ll see that private sector compensation costs generally advanced at a rate 10.06 percent faster than total compensation in manufacturing; that private sector wages and salaries costs went up 11.70 percent faster than their manufacturing counterparts; and that benefits costs rose 10.67 percent faster.

Now let’s look at the annual changes in each variety of compensation costs since 2009. The figures show changes between the fourth quarters of each year, and if you look at the 2016-17 data and the 2017-18 data, you see the growth slowdowns and actual backsliding in manufacturing mentioned above.

            PS comp   mfg comp   PS wages  mfg wages  PS bens   mfg benefits

09-10:   +1.20%    +0.94%      +1.18%     +0.14%     +1.38%     +2.52%

10-11:   +2.95%    +2.20%      +2.55%     +1.60%     +3.95%     +3.37%

11-12:   +1.05%    +1.79%      +0.89%    + 2.13%     +1.42%     +1.15%

12-13:   +2.63%    +4.83%     +2.17%     +4.08%      +3.74%     +6.28%

13-14:   +5.70%    +4.52%     +4.62%     +4.36%      +8.23%     +4.84%

14-15:    +1.21%   +4.82%     +1.93%     +4.30%       -0.31%     +5.79%

15-16/;   +3.34%   +2.16%     +3.12%     +2.56%      +3.76%     +1.41%

16-17:    +2.93%    -0.89%     +2.80%      -0.74%      +3.22%     -1.77%

17-18:    +0.98%    +0.28%    +1.62%     +0.63%      -0.49%      -0.44%

Another noteworthy characteristic displayed by these numbers: They can be very volatile. For optimists, this choppiness may be a sign that manufacturing compensation will turn another corner, and that overall private sector compensation will rise at an accelerating rate. They could also explain the relatively weak manufacturing results as a sign that, as has been widely claimed and that I’ve discussed previously, that industry is attracting job-seekers whose qualifications are so threadbare that they can’t command premium wages and benefits even in the currently tight national labor market.

Pessimists can counter by contending that recovery-era compensation increases have surely peaked, either since the expansion will surely peter out soon simply because it’s already lasted so long, or because the boost received from the President Trump’s tax cuts has run its course, or both.

I’ll stay agnostic for now. But I feel pretty confident that if you look at the ECEC figures that start coming out in mid-2020, you’ll have a decent idea of who America’s next president will be.

Advertisements

(What’s Left of) Our Economy: Why Wage Inflation Claims are Still Grossly Inflated

Tags

benefits, compensation, ECI, Employment Cost Index, inflation, salaries, wages, workers, {What's Left of) Our Economy

If you were examining whether American workers’ pay was finally beginning to rise at a rate consistent with a lengthy economic recovery and an apparently tight labor market, wouldn’t you focus on pay adjusted for inflation – which gauges whether these workers are keeping up with living costs? And wouldn’t you focus more on trends in the private sector (where wages, salaries, and benefits are set mainly by market forces, and therefore say something meaningful about the economy’s fundamentals) than in the public sector (where they’re set by government fiat)?

The alarm and enthusiasm (depending on your perspective) with which last week’s Labor Department figures on employment costs were greeted makes clear that both these best practices of economic analysis were widely ignored.

As the Department reported, the Employment Cost Index (ECI) – the compensation measure that includes all forms of pay and benefits – rose 2.71 percent on year in the first quarter of this year for “civilian workers.” That category includes the public sector, and was indeed the strongest such increase since 2008.

The numbers were even better in private industry: a 2.81 percent yearly gain. That’s also the best since 2008 (the third quarter’s 2.84 percent).

Adjust for inflation, though – that is, see the extent to which workers are staying ahead of living costs, not to mention the extent to which they are leading overall price rises – and the story looks very different.

According to the price-adjusted ECI issued by the Labor Department, during the first quarter of this year, compensation for civilian workers increased by 0.38 percent year-on-year. That’s actually lower than the annual increase for the previous quarter (0.48 percent). In fact, on a sequential (quarter-to-quarter) basis, the real ECI fell (by 0.29 percent).

That annual gain was indeed better than that for the first quarter of 2017 – when there was no increase in the inflation-adjusted ECI at all. But it wasn’t as good at the 0.87 percent improvement from the first quarter of 2015 to the first quarter of 2016. And it wasn’t even close to the 2.59 percent rise registered between the previous first quarters. So let’s recognize that, during the first quarter of 2018, the real ECI did nothing special – at best.

The story is just as unexciting – and contrary to accelerating wage inflation claims – in the private sector. Its real ECI increased by 0.39 percent annually during the first quarter, and also fell (by 0.19 percent) sequentially.

Between the previous first quarters, the real ECI flat-lined, too, after advancing by 0.97 percent the year before and 2.70 percent the year before that.

Some day, American workers may actually experience another genuine acceleration in their real compensation, and thus a genuine increase in their living standards. But looking at the most revealing version of the Employment Cost Index makes painfully clear that that day still lies in the future.

(What’s Left of) Our Economy: What Blue-Collar Pay Surge?

Tags

benefits, blue-collar workers, Bureau of Labor Statistics, compensation, managers, minimum wage, professionals, salaries, The Economist, wages, White-collar workers, {What's Left of) Our Economy

That was some claim made by The Economist earlier this month about blue-collar wages in America: They “have begun to rocket. In the year to the third quarter, wage and salary growth for the likes of factory workers, builders and drivers easily outstripped that for professionals and managers.” Even better, these workers, whose pay stagnation has practically defined the so far weak U.S. economic recovery from the Great Recession, have been enjoying pace-setting compensation gains for the last five years, the magazine writes.

I’d be feeling awfully good about this development – except the article in question was a model of overly enthusiastic cheerleading. More specifically, it’s a great example of how failing to look at statistics in enough detail can produce seriously flawed pictures of the economy.

The heart of The Economist‘s case is this chart, which shows that overall compensation (wages, salaries, and benefits) for occupations that don’t involve managerial, executive, or high level administrative responsibilities, and that lie outside the professions, has been rising faster than compensation for occupations that do deal with these matters.

But even a glance should reveal a serious potential problem – the categories are awfully broad. In fact, they lump together lots of occupations that on their own seem awfully big. (To be sure, the source – the Bureau of Labor Statistics – uses these categories. But it presents narrower ones, too.] Further, the five-year period The Economist uses as its longest-run time frame is a period that’s economically meaningless. And in fact, disaggregating those occupational categories and using an economically meaningful long-term time frame (the duration of the current recovery) yields significantly different results.

For example, according to the chart, the big American compensation winner has been the “production, transportation, and material moving” cluster. Adjusted for inflation (which the magazine doesn’t do), here’s how its compensation (including for government workers in these occupations) has improved over the latest quarter year for which data are available, the latest year for which we have statistics, and since the recovery began:

2Q 2017-3Q 2017: +0.38 percent

3Q 2016-3Q2017: +1.06 percent

current recovery: +5.56 percent

This performance is indeed much better than the super-category covering white-collar workers – “management, professional, and related” workers:

2Q 2017-3Q 2017: -0.01 percent

3Q 2016-3Q 2017: +0.01 percent

current recovery: +2.86 percent

But look what happens when you separate production workers from the transportation and material moving workforce:

2Q 2017-3Q 2017: +0.49 percent

3Q 2016-3Q 2017: +0.79 percent

current recovery: +4.58 percent

The compensation gains are still better than those for the managers. But the gap is a good deal smaller.

Now let’s remove professional workers from the management cluster. The compensation increases for business and financial managers are:

2Q 2017-3Q 2017: -0.01 percent

3Q 2016-3Q 2017: +0.57 percent

current recovery: +4.48 percent

Except for the latest quarterly figure, they’re pretty comparable to the advances for the production workers.

Now let’s look at another blue-collar category – “office and administrative support.” Compensation increases for the relevant time frames are as follows:

2Q 2017-3Q 2017: -0.009 percent

3Q 2016-3Q 2017: +0.19 percent

current recovery: +4.63 percent

These increases over the short-term are actually somewhat weaker than for the business and financial managers. When it comes to “installation, maintenance, and repair,” the latest quarterly compensation gains were a bit better than those for the business and financial managers. But the latest yearly and recovery era increases for the installation category were worse than those for the business and financial managers.

2Q 2017-3Q 2017: +0.01 percent

3Q 2016-3Q 2017: +0.39 percent

current recovery: +4.40 percent

And we see the same kinds of numbers for the catch-all “service operations” category:

2Q17-3Q17: -0.01 percent

3Q16-3Q17: +0.38 percent

current recovery: +3.04 percent

So what’s really going on here is that compensation for some blue-collar workers has recently begun to rise faster than compensation for some white-collar workers, and that compensation for some white-collar workers continues to rise faster than compensation for some blue-collar workers. And let’s not forget how governments across the country have acted in the last few years to juice blue-collar pay – by raising the minimum wage. These actions, whatever their substantive merits or flaws, tell us nothing about underlying trends shaping the economy.

Yes, it’s hard to turn those observations into a catchy headline and an eye-opening story. But that’s why discerning readers have learned to distinguish journalism from clickbait.

(What’s Left of) Our Economy: Even a U.S. Growth Pickup Keeps Leaving Wages Behind

Tags

benefits, Employment Cost Index, Immigration, inflation-adjusted wages, Labor Department, manufacturing, offshoring, recovery, salaries, Trade, wages, {What's Left of) Our Economy

Government data released yesterday morning make clear that the supposed biggest mystery surrounding the American economy remains as big as ever – and may have become even bigger. I’m talking about the Labor Department’s quarterly report on employment costs – the broadest official measure of compensation available. It continues a wave of statistics demonstrating that although the nation’s economic growth rate is quickening some, virtually none of this progress is showing up in American workers’ combined paychecks or benefits levels.

The figures are contained in Labor’s third quarter Employment Cost Index, and although the pre-inflation numbers usually attract the most attention, the most important news was in the price-adjusted data. They showed the third quarter-to-quarter drop in this combination of private sector wages, salaries, and benefits since the middle of last year. (I focus on the private sector, because in the public sector, compensation largely stems from politicians’ choices, not from the fundamentals of the economy.)

The drop wasn’t big – 0.1 percent. But it was enough to drag down the year-on-year change to 0.29 percent.

These inflation-adjusted employment cost numbers don’t go back past 2001. But they still allow comparison between the current economic recovery and its predecessor. During the expansion that lasted between the end of 2001 and the end of 2007 (not widely considered a golden age for U.S. workers), private sector employment costs rose a total of 2.36 percent. During the current, ongoing expansion, which began in mid-2009, it’s up 3.70 percent.

But don’t assume that we’re seeing progress. After all, that previous expansion lasted 24 quarters. Today’s is 33 quarters old.

Manufacturing workers have fared somewhat better, especially over the longer term. The quarter-to-quarter and year-on-year change in their inflation-adjusted employment costs was the same as for the private sector overall.

Their employment costs increased only 1.99 percent in real terms during the last recovery – a slower pace than for private sector workers in general. During this recovery, it’s been considerably faster: 5.03 percent. At the same time, last year’s numbers do indicate a slowdown.

All told, since the last decade’s recovery began, overall compensation for manufacturing workers has grown by 7.34 percent in constant dollars, versus only 6.58 percent for the private sector in toto.

Keep in mind, moreover, that these figures span a period of sixteen years.

Keep in mind also that a crucial reason for this pay stagnation looks to be staring supposedly mystified policymakers right in the face – the two-way globalization whammy that’s hit the American workforce over the last two and a half decades. Thanks to offshoring focused trade deals and mass immigration, businesses operating in the United States have been able to access massive, very low wage foreign workers either by sending production overseas, or by pushing policymakers to help bring them to America.

Further, as is even more often overlooked, the job doesn’t need to go overseas, or be replaced by an immigrant, for these policies to impact U.S. labor markets. The very possibility has surely scared American workers enough to keep wage demands subdued – at best.

Interestingly, of course, these developments haven’t escaped the notice of many of the American workers who vote. That’s no doubt a major reason why Donald Trump is president. But it also signals that unless he’s more effective on the trade and immigration fronts, he could be replaced on his job as well.

(What’s Left of) Our Economy: New Evidence of a Crossroads for the U.S. Jobs Market

Tags

benefits, compensation, Employment Cost Index, Federal Reserve, inflation, Labor Department, labor market, labor unions, private sector, recovery, salaries, wages, {What's Left of) Our Economy

If you’re one of the American workers who’s been happy with the current economic recovery, you might have already seen peak pay gains. If you haven’t been satisfied, get ready for greater disappointment. And whatever category you fall into, you’d better hope that new U.S. government data on overall compensation paid by American employers is just a blip. Ditto that for the Federal Reserve, which is set to announce its latest decision on interest rates later today, and which seems convinced that the American labor market is healthy enough to withstand a series of hikes back toward historically normal levels.

Last week, the Labor Department issued its latest quarterly report on how much business shells out in terms of both wages, salaries, and benefits. The results in the main release looked pretty good, but they’re not adjusted for inflation – which means that they don’t tell the full story about whether or not compensation is keeping up with the cost of living. Luckily, Labor released the inflation-adjusted figures, too, and they make clear that whatever real compensation progress workers might have been recently been making could be in danger.

According to these constant-dollar Employment Cost Index (ECI) figures, real pay for all private sector workers was flat year-on-year for the quarter ending in March. (I don’t usually examine pay data that include government workers because their compensation is set overwhelmingly by political decisions, not market forces, and therefore don’t say much about the underlying strength of the labor market or the broader economy.)

That annual result was the worst since the quarter ending in June, 2014 – when after-inflation compensation also flatlined on an annual basis. By comparison, the real ECI between that first quarter of 2015 and the first quarter of 2016 rose by 0.97 percent.

Looked at quarter-to-quarter, the real ECI for private sector workers fell by 0.10 percent. The previous sequential change was a 0.29 percent improvement. Indeed, the latest numbers broke a two-quarter string of gains.

From a longer-range perspective, however, the current recovery still stacks up pretty well for private sector workers (although the data only go back to mid-2001). Since it began, in mid-2009, their total compensation is up by 3.60 percent. During the previous (shorter) expansion – which ran from late 2001 through late 2007, total inflation-adjusted compensation rose by only 2.36 percent.

The new real ECI results reveal similar trends for American manufacturing workers. The first quarter’s year-on-year 0.20 percent drop was the worst such result since an identical decrease in the final quarter of 2012. And the previous first quarter annual change was a 1.49 percent rise.

Sequentially, real manufacturing compensation also fell during the first quarter – by 0.29 percent. And as with overall private sector compensation, that was the first such decline in three quarters.

Interestingly, in terms of real total compensation, the current recovery has been a winner for manufacturing workers to an even greater extent than for all private sector workers. Combined constant dollar employer costs for wages, salaries, and benefits have risen by 4.72 percent – compared with a 1.99 percent advance during the previous recovery. (RealityChek regulars will note that these results contrast strikingly with those for wages alone, where manufacturing has been a major laggard. One reason is surely manufacturing’s relatively high unionization rate – which typically results in better benefits won and kept.)

If the Federal Reserve decides today to raise the federal funds rate it controls directly, or even if it simply stays determined to remains on a tightening path, it would signal its confidence that the American labor market remains on the mend following devastating losses during the last recession. Any doubts the central bank voices about its current strategy might indicate that it’s genuinely worried about the new ECI statistics – and that U.S. workers should be, too.

(What’s Left of) Our Economy: New Data (Further) Deflate Wage Inflation Claims

Tags

benefits, compensation, ECI, Employment Cost Index, Jobs, salaries, wage inflation, wages, {What's Left of) Our Economy

I know that most mainstream economists are going to look at the latest figures on overall pay for American workers and keep claiming that the United States is experiencing or about to experience meaningful wage inflation. I just don’t know how they’re going to keep doing it in a way that convinces any fair-minded observers.

The data come from the Labor Department’s Employment Cost Index (ECI) and, to review, they’re the numbers that include both salaries and benefits as well as wages. Their two drawbacks are (1) they’re not adjusted for inflation; and (2) they’re issued quarterly, not monthly like the more closely followed wage statistics, so they’re not quite as timely.

Yet thanks to a (regular) quirk in the calendar, since we’re still in April, this newest ECI is timelier than usual. For it covers the first quarter of this year, which ended in March. And what it reports is that the year-on-year change in overall American workers total compensation – 1.79 percent – was not only much lower than that for first quarter, 2014-first quarter, 2015. The change, a drop of 34.91 percent from that previous 2.75 percent annual increase, also was the biggest such falloff by far since this trend began to be tracked in 2001. For good measure, the latest year-on-year change was the third weakest in absolute terms since then.

Matters don’t look any better when the current economic recovery is compared with its predecessor – the kind of analysis that produces the best (apples-to-apples) perspective. During the six-year economic expansion of the 2000s – which was largely fueled by bubbly borrowing and spending – the ECI rose by a total of 21.71 percent. During the current expansion, which has just become slightly longer, ECI is up 14.52 percent.

So it still seems perfectly justified to use “wages” and “inflation” in the same conversation. But putting them in the same (serious) sentence continues to get more difficult.

(What’s Left of) Our Economy: Wage Inflation Claims Keep Flunking the Laugh Test

Tags

benefits, compensation, ECI, Employment Cost Index, salaries, wages, {What's Left of) Our Economy

Amid the excitement of last week’s Iowa Caucus homestretch, it was easy to overlook the Labor Department’s release of new data on overall U.S. pay levels. Even so, they deserved attention, because they represent yet another set of full-year 2015 figures that offer an unusually informative glimpse of where the economy stands. P.S. – they put yet another nail in the coffin of claims that American wages are taking off or about to.

Perhaps most surprising: A trend I spotted last year is holding: Pay gains have lagged badly in the professional, scientific, and technical services category – sectors that include many of those knowledge jobs widely considered crucial to the nation’s future competitiveness and prosperity, and where companies are constantly crying “Labor shortage!” and (successfully) demanding more immigrant workers.

The compensation figures make up the Employment Cost Index (ECI). They suffer two drawbacks compared with the wage numbers that come out each month in that they’re not adjusted for inflation, and they’re only issued quarterly. But the ECI measures salaries and benefits, too, so it reveals more about a larger share of the U.S. workforce. And what they reveal is not only slowing increases in overall compensation over the longer haul, but even over the past year.

According to these data, from the first quarter of 2014 to the first quarter of 2015, total pay in America grew by 2.75 percent before accounting for price changes. (I don’t bother looking at the numbers for public sector employees, because their pay reflects political decisions more than market forces, and therefore tell us little about the state of the economy.) In the fourth quarter, this growth had slowed to 1.88 percent.

Moreover, that fourth quarter annual increase was the third worst such performance since 2001-02, when this series begins. The worst came in the recession year 2008-09 (1.19 percent) and the second worst was 2011-12’s 1.82 percent. This is wage inflation?

The compensation picture doesn’t look much better – possibly unless you’re an employer – when we compare this recovery’s trends with that of its predecessor (the only one on record). That’s the economics world’s best version of apples-to-apples data (along with comparing recessions). During the six-year expansion of 2001-2007, the ECI rose by a total of 21.71 percent. During the current recovery, which has been slightly longer, this figure has been only 13.79 percent.

One relative bright spot: manufacturing. Over the past year, some pickup can be seen in the growth of compensation in that sector – from 2.37 percent annually during the first quarter to 2.50 percent in the fourth quarter. Moreover, that fourth quarter 2014-15 advance was manufacturing’s best fourth quarter increase since 2010-2011, and its improved every year since then.

The current recovery has seen smaller gains in the manufacturing ECI than during the last recovery. But the gap was smaller than for private sector workers as a whole: 21.21 percent versus 15.38 percent.

And compared with that high tech professional, scientific, and technical services, grouping, manufacturing pay was just killing it. In those allegedly labor-short industries, compensation not only grew more slowly over the last year – the growth rate cratered. During the first quarter, it rose by 3.61 percent over the first quarter of 2014. By the fourth quarter, this increase was down to 1.58 percent. That’s also the category’s third worst fourth-quarter-to-fourth quarter gain since government data started being published (for 2003-04). It trailed only 2004-05’s 1.31 percent, and recession-ary 2008-09’s 0.53 percent.

Over the last two recoveries, compensation in these sectors of the future looks dismal, too. During the previous expansion, it reached only 15.05 percent – but that only takes into account four years of data. If this growth rate is projected out to six years, however, it still only comes to 22.58 percent. That’s just slightly better than the pay growth for the private sector as a whole. But during the current recovery, professional, scientific, and technical services pay growth sank to 12.72 percent – meaningfully slower than that for the entire private sector.

As anyone schooled in economics knows, when anything is inflating, its costs should be rising ever faster. And when anything is in short supply, its costs should be inflating. That neither of these developments has been visible in the U.S. economy makes clear that those claiming wage inflation are either fools or – far more likely – self-seeking knaves.

(What’s Left of) Our Economy: Wage Inflation Claims Looking Dumber (or More Self-Interested?) Than Ever

Tags

banks, benefits, compensation, ECI, Employment Cost Index, Federal Reserve, inflation, inflation hawks, inflation-adjusted wages, interest rates, manufacturing, real wages, recovery, wages, workers, {What's Left of) Our Economy

You’ve heard the expression that something has just moved from the sublime to the ridiculous? With the new Labor Department report on employment costs, claims that U.S. wage inflation is finally taking off have moved from the ridiculous to whatever comes afterwards – and that may mean “conflicted.”  

The Employment Cost Index (ECI) has recently become the principle basis for the wage inflation case because, six years into a dreary economic recovery, it’s the only measure indicating that compensation might not be continuing its decades-long stagnation. Therefore, it’s become a mainstay for monetary policy hawks who insist that American labor markets crippled by the Great Recession really have healed, and that it’s high time for the Federal Reserve to raise its key interest rate from its current near-zero level. Never mind, by the way, that none of the ECI’s readings adjusts for inflation, and that its headline includes benefits (which include lots of one-time rewards handed out to workers recently by nervous employers seeking more control over and flexibility with their payrolls).

It’s not my intention to comment today on the interest rate debate. But nothing could be clearer than that this morning’s ECI reading means that the wage inflation vigilantes need to change their tune, or they need to find some new evidence that American workers aren’t still receiving the short end of the stick.

The always provocative – and often on-target – ZeroHedge.com site has pointed out that on a sequential basis (these reports come out quarterly), the new ECI headline change was the worst since the series began in 1982. More revealing, though, are the year-on-year changes released this morning.

According to the Labor Department, the increase in total compensation costs for civilian workers – including wages, salaries, and non-wage benefits – was two percent. And even with inflation running well below that level, this means that employees are barely staying ahead of living costs. The comparable figure for the previous year? The same two percent, with the same implications.

Over the last year, wages and salaries rose 2.1 percent in pre-inflation terms – slightly better than the previous year’s 1.8 percent. But despite the excitement among economists and pundits over benefits, their year-on-year increase of 1.8 percent was well below 2013-2014’s 2.5 percent.

But the bad news for inflation hawks (and for the nation’s workforce) doesn’t stop there. For even these crummy numbers were propped up by compensation for government workers. Their wages, salaries, and benefits aren’t set by market forces, which means that they tell us nothing about the state of labor markets. Instead, government wages etc are set by government decisions.

Take out compensation determined solely by politicians’ whims, and the headline ECI figure rose by only 1.9 percent from June, 2014 to June, 2015. That’s less than the previous year’s anemic two percent even. Wage and salary increases picked up some during this period – from 1.9 percent to a still lousy 2.2 percent. But benefits really tanked – from a 2.4 percent rise from June, 2013-June, 2014 to 1.4 percent. That’s barely ahead of inflation.

Today’s ECI did contain one mild surprise: The June year-on-year increase for overall manufacturing compensation (2.5 percent) topped that for private industry as a whole, and was also faster than the previous year’s rise (2.1 percent). At the same time, before the recession hit, total manufacturing pay often registered much bigger annual gains.

I’m not big on conspiracy theories, and by no means do I believe that the economic argument for Fed rate hikes is nonsensical. Far from it. But given these results, going forward, it’s going to be important to keep in mind one other big source of fuel for any continuation of wage inflation claims – higher interest rates, all else equal, would mean much bigger profits for America’s banks. And many other finance companies have based their hopes for bigger profits on expectations of rate hikes. So when you start hearing again about wage inflation claims, which you surely will whatever the data say, it will be more important than ever to consider the source.

(What’s Left of) Our Economy: Why Increasingly Disposable Workers Become Increasingly Wary Consumers

Tags

benefits, bubbles, consumers, debt, Employment, Federal Reserve, growth, incomes, Jobs, JPMorgan Chase, Robert Samuelson, salaries, savings, savings rate, spending, temporary jobs, volatility, wages, {What's Left of) Our Economy

After his last clunker attempting to debunk claims of a U.S. employment recovery led by lousy jobs, Washington Post columnist Robert Samuelson owed us a good piece. I’m pleased to say he’s delivered with this morning’s effort examining the roots of the consumer caution witnessed since the Great Recession ended.

First, however, let’s specify that “caution” is a relative concept here. Yes, Americans are spending much less of their income these days than they did during the bubble decade – when it hit all-time lows. In fact, in July, 2005, the personal savings rate, which measures that relationship, sank to 1.9 percent, and some news reports back in those days said that it actually went negative that whole year (though it seems that figure has been revised). All the same, even the 1.9 percent figure showing up in the government’s tables now is much lower than the 5.6 percent for last month reported this morning by the Commerce Department.

Yet although it’s clear that savings have been growing on a monthly basis since late 2013, they’re still not close to their highs earlier in the recovery, when the rate regularly hit high single digits. And for decades until the last massive spending and housing bubble, high single-digit savings rates were the American norm.  In other words, the nation knew how to expand the economy in ways other than launching shopping sprees.

Nonetheless, since U.S. growth is still so spending-heavy, any sign of slackening is at least a short-term cause for concern. And Samuelson’s column today presented a great explanation. On top of still being burdened by accumulated debts and understandably gun-shy after the worst economic downturn since the Great Depression, Americans are facing a labor market in which employers increasingly treat them as more disposable than ever before. Principally, more and more businesses are looking at their employees as variable costs, which they can and should reduce whenever possible even in normal times to boost profits, rather than as fixed costs, which they’re stuck with except when economic conditions worsen significantly.

The resulting move toward using temporary workers has lowered employers’ costs both by giving them more flexibility and by enabling them to use more workers who can’t command significant benefits. But as Samuelson observes, these trends also creates much more economic insecurity for those workers, and logically a greater reluctance to spend.

In addition, Samuelson points out, this insecurity is being reinforced by ever more flexible compensation practices. Fewer and fewer workers are earning wages and salaries that are regularly and predictably increased (when possible via some combination of their bargaining power and their employers’ finances). Compensation increases that are handed out increasingly consist of various one-time payments that don’t need to be added to base wage and salary structures, and therefore can be withdrawn at the drop of a hat.

I’d just add two points. First, it looks very much like increasingly flexible employment and pay practices by business are showing up in statistics on how much Americans are earning. According to a recent major study from JPMorgan Chase, between October, 2012 and December of last year, 84 percent of Americans saw their incomes change by more than five percent month-to-month. Even year-to-year, when smaller fluctuations would be the norm, 70 percent of Americans still experienced such large income swings.

Even more noteworthy, 26 percent of the 2.5 million Americans examined by JPMorgan Chase saw their incomes rise or fall (mainly rise, fortunately) by more than 30 percent between 2013 and 2014. Forty-four percent experienced swings of between five and 30 percent. And this volatility was somewhat greater among higher income Americans than among lower.

Second, although U.S. businesses may see their workers are increasingly disposable, the American economy can’t afford nowadays to see consumers – most of whom are workers – in this dismissive light. Indeed, as I’ve just written, personal consumption is just about as great a share of the economy these days as it was during the bubble decade.

Combine an economy that remains consumption-heavy with income sources that are becoming less and less reliable, and it’s no mystery why what meager growth the nation can still generate remains so greatly fueled by ever greater indebtedness – and why the Federal Reserve is so reluctant to end America’s addiction to easy money.

Following Up: Settling the Debate over Manufacturing Pay

Tags

benefits, Following Up, manufacturing, National Association of Manufacturers, National Employment Law Project, wages

Remember Monday’s post on a debate over pay in the manufacturing sector? One of the frustrations I expressed was that U.S. government data on manufacturing compensation that includes non-wage benefits and that’s adjusted for inflation didn’t seem to be available. Therefore, it was difficult to judge whether benefits were (at least) making up for the decline in real wages suffered by manufacturing workers (as insisted by the National Association of Manufacturers), or whether this drop-off in hourly pay genuinely is cause for worry (as insisted by the National Employment Law Project).

Yet thanks to yesterday morning’s release of new labor productivity figures by the Labor Department, I saw that this missing data isn’t missing after all. As part of its efforts to track productivity, Labor compiles figures on real hourly compensation for major sectors of the economy, and manufacturing is one of them. And the statistics seem to prove beyond reasonable doubt both that there’s a major problem with manufacturing pay, and that most of the latest labor productivity gains achieved by the sector have resulted from skimping on compensation, not by some combination of more advanced technology and smarter management.

As shown in the Bureau of Labor Statistics’ interactive database, during the current recovery, which has seen labor productivity rise by 15.29 percent in manufacturing, real hourly compensation in the sector has fallen by three percent.

That’s a striking contrast with the previous economic expansion, which lasted from the final quarter of 2001 to the final quarter of 2007. Then, hourly compensation in manufacturing actually increased – by 6.44 percent in real terms. But labor productivity grew much faster than in the current recovery – by 26.32 percent.

Similar results emerge after adjusting for the different lengths of the two expansions. Over the first five years of the current recovery, inflation-adjusted hourly compensation in manufacturing fell by 3.11 percent, and productivity improved by 14.47 percent. Over the first five years of the previous recovery (which lasted a total of six years), inflation-adjusted hourly compensation in manufacturing increased by 5.28 percent, and manufacturing productivity rose by 21.85 percent.

The composition of productivity gains is best gleaned from Labor Department data on multi-factor productivity, which includes all inputs into all sectors of the economy, not just labor. For manufacturing, the latest of these statistics only goes up to 2012, which limits the conclusions that can validly be drawn about the current recovery. But the declining contribution made by capital-intensivity since 2007 (shown in Table B) certainly reinforces the idea that spending on new machinery and equipment – including on “information processing equipment” and “intellectual property products” – has been anything but central to manufacturing’s efficiency lately.

As I keep noting, few have ever called American domestic manufacturing during the previous bubble decade a sector on the upswing. And yet it managed a feat apparently beyond the ken of this decade’s supposedly renaissance-ing industry – increasing productivity and pay at the same time. Hmmm.