(What’s Left of) Our Economy: Real Wage Growth Keeps Disappointing

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inflation, inflation-adjusted wages, Labor Department, manufacturing, private sector, real wages, recovery, wages, {What's Left of) Our Economy

The economics world is becoming ever more puzzled by the sluggishness with which American wages have been rising during the current economic recovery despite very low rates of official unemployment. Judging by the new June inflation-adjusted wage figures released today by the Labor Department, all the usual suspects are going to be wondering about wages lag for some time to come.

The new data left unrevised both the finalized (for now), April figures, and the still preliminary May results.

For the former, constant dollar wages were flat month-to-month and up 0.28 percent year-on-year, and for the latter, they increased by 0.28 percent on month and 0.56 percent on year.

The June numbers? In the same neighborhood, with a monthly advance of 0.19 percent and a yearly improvement of 0.84 percent. For some context, real private sector wages increased nearly twice as fast between the previous Junes – by 1.62 percent.

Manufacturing, once the economy’s wages leader, kept its recent laggard status. Its (now final) April and (still preliminary) May results were unrevised, too – which in this case contained some good news. The former monthly increase of 0.55 percent, the best since August, 2015’s 0.66 percent, stayed intact. So did the annual increase – which was identical. At the same time, May’s 0.28 percent monthly decline is still on the books, too, as was the year-on-year change – which was zero.

As with after-inflation wages in the private sector overall, after-inflation manufacturing wages performed slightly better in June. They inched up by 0.09 percent on month and rose 0.37 percent on year. But the latest annual increase was much slower than that between June, 2015 and June, 2016 – 1.32 percent.

And nothing makes clearer the long-time stagnation of overall private sector and manufacturing wages than seeing their inflation-adjusted change during the economic recovery – which marked its eighth birthday last month. For the private sector, they’re up a total of 4.46 percent. For the manufacturing sector, the rate has been less than a third as fast – 1.32 percent. Which raises the question, “What comes first: the end of the recovery or the end of wage stagnation?

(What’s Left of) Our Economy: Smart Phones, Dumb Economy?

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cell phones, consumers, credit, CreditSesame.com, debt, deflation, inflation, Maria Lamagna, Marketwatch.com, millennials, smartphones, telecommunications services, {What's Left of) Our Economy

I’m always wary of drawing conclusions about the American economy from what I see in everyday life for reasons that should be obvious. All such anecdotes should be viewed suspiciously because individual observations or incidents are much more likely to result from randomness or unique circumstances than to reflect a genuine trend. And I’d be the last to claim that my own experiences have ever been representative of anything larger.

Still, it’s undeniably, and understandably, gratifying when some actual data seems to bear out something that’s had me (figuratively) scratching my head for some time. It’s the seeming tendency of folks who at least appear to be well into the lower depths of the “99 percent” of non-uber-wealthy Americans owning what look (to my admittedly non-expert eye) like state-of-the-art smartphones. Although all sorts of reasonable explanations are possible, a recent survey of consumer finances at least has supported my suspicion that something genuinely peculiar – and not so encouraging – really is going on here.

First, let’s examine some of the extenuating circumstances. Prices for smartphone services have been falling steadily – and steeply over the last few months, thanks largely to the spread of unlimited data plans. Just check out this chart:

Younger consumers in particular also have shown some tendency to value buying experiences (like the extraordinary connectivity provided by modern personal communications) over goods. Some of these millennials and others in the post-baby-boom categories (especially students) may be getting help from their families – and that doesn’t necessarily raise red flags. More disturbing, however, are the odds that many of the young are avoiding or deferring goods purchases (especially big ones they used to make in the twenties and thirties, like cars and homes) because they simply can’t afford them, and are therefore substituting relatively cheap indulgences like phones with every conceivable bell and whistle.

Nonetheless, that consumer finance survey – from the Credit Sesame website – sadly suggests that many low-income earners who use smartphones of some kind (it’s not possible to say that they’re the latest and greatest) literally can’t afford them. Instead, they’ve bought them with seriously over-extended credit.

According to Marketwatch.com reporter Maria LaMagna, Credit Sesame examined the finances of 5,000 consumers and found that those whose cell phone accounts are considered delinquent were carrying an average balance of $887. I couldn’t find any information about what percentage of the 5,000 consumers analyzed were carrying such cell phone debt, but here’s a reason to think that the share carrying significant amounts is pretty big: phone service companies don’t usually report customers’ payments histories to credit bureaus until the collections process formally begins. I also wish that the article indicated how credit card-related debt has changed over time.

But it’s hard to believe that a reputable site like Marketwatch would have reported these numbers had they been more the exception than the rule. And the amounts of cell phone-related debt are especially striking given how services are now cratering in price.

It’s entirely possible that cell phone debtors will take advantage of these price plunges to pay up and stay fully paid up. In principle, the companies could start cracking down, too. But there’s also a real chance that the debtors will simply start paying their minimums on time, and that the service companies – currently engaged in price wars determined to get and keep customers practically at all costs – will keep treating them leniently (and milking them as cash cows for as long as they can). Raise your hands if you think this is any way to run an economy for any serious length of time.

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

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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: No News isn’t Good News on Trade and U.S. Economic Growth

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exports, GDP, goods, gross domestic product, imports, inflation, Made in Washington trade deficit, non-oil goods deficit, real GDP, real trade deficit, recovery, services, Trade, trade deficit, {What's Left of) Our Economy

The government’s second figures for fourth quarter and full-year 2016 gross domestic product (GDP) confirmed the dismal trade results reported in last month’s initial reading. The real annualized trade deficit still recorded its biggest relatively quarterly jump (14.82 percent) since the second quarter of 2010 (14.90 percent). Consequently, as reported in the advance release, the cumulative trade drag on the current weak U.S. economic recovery shot up from 6.57 percent to 10.13 percent.

Trade’s absolute bite from annualized quarterly real growth remained the biggest (1.70 percentage points from 1.84 percent annualized growth) since the second quarter of 2010 (1.77 percentage points from 3.86 percent annualized growth) – though it dipped in absolute terms. On an annual basis, though, the trade drag on constant-dollar American growth still came in much lower than in 2015 – falling from 0.71 percentage points out of a 2.60 percent improvement o 0.12 percentage points out of a 1.60 percent uptick.

The fourth quarter price-adjusted annualized trade deficit stayed at $599.6 billion – still the biggest since the $623.7 billion mark of the first quarter of 2008. The annual real trade shortfall of $561.6 billion was unrevised, too, and remained the greatest since 2007’s $712.6 billion. Both previous peaks were reached as the Great Recession was breaking out.

The new GDP figures revealed new real export records for services ($685.5 billion annualized) on a quarterly basis and for combined goods and services exports ($2.1288 trillion) on an annual basis. Both results were upgraded fractionally. New records also remained in place for quarterly overall imports ($2.7395 trillion annualized – a slight upward revision), and quarterly goods imports ($2.2533 trillion annualized – a small downgrade). The same was true for annual overall imports (revised up slightly to $2.6904 trillion), goods imports (downgraded fractionally to $2.2097 trillion), and services imports (upgraded to $478.3 billion).

Here are the trade highlights from this morning’s GDP report:

>On the trade front, no news was anything but good news in the U.S. government’s second reading for fourth quarter and full-year 2016 inflation-adjusted gross domestic product (GDP) growth. The new release confirmed last month’s advance report showing that a major jump in the quarterly real trade deficit greatly boosted trade’s drag on the nation’s already feeble economic recovery.

>The revised GDP numbers revealed that the inflation-adjusted trade deficit for goods and services for the fourth quarter stayed at $599.6 billion at an annual rate, which still represented a 14.82 percent on quarter surge, from $522.2 billion. Moreover, this largest sequential percentage increase since the second quarter of 2010 (14.90 percent) kept the trade bite from quarterly growth (1.70 percentage points out of a 1.84 percent annualized real GDP increase) as the deepest since that second quarter of 2010 (1.77 percentage points out of 3.86 percent annualized growth). And since the overall after-inflation sequential GDP improvement was revised down slightly from 1.86 percent, the trade drag worsened slightly.

>In consequence, the new figures showed that the trade subtraction from cumulative real GDP growth during this historically feeble American economic recovery still rose from 6.57 percent to 10.13 percent sequentially.

>The rise in the Made in Washington U.S. trade deficit has slashed recovery-era growth to a much greater extent. This gauge measures trade flows heavily influenced by U.S. trade policies – of goods excluding oil (which doesn’t tend to come up in trade negotiations and where American net imports have dropped dramatically) and services (where trade liberalization remains limited).

>The latest full-year 2016 figures show that this Made in Washington shortfall has cut cumulative inflation-adjusted growth during the recovery by 18.86 percent, or $461.78 billion.

>On an annual basis, however, the GDP report left unrevised a drop in the trade drag on growth – from 0.71 percentage points from 2.60 percent inflation-adjusted growth in 2015 to 0.12 points out of a 1.60 percent real GDP increase last year.

>The real trade deficit also grew in 2016 at a much slower pace (four percent) than in the fourth quarter. Nonetheless, at the same $561.6 billion level, it remained the greatest annual price-adjusted trade gap since 2007 ($712.6 billion).

>The new GDP report confirmed its predecessor’s finding that the real trade deficit also rose proportionately in the fourth quarter of 2016 – to its highest share of after-inflation GDP (3.57 percent) since the fourth quarter of 2008 (3.64 percent).

>Similarly, today’s GDP numbers reiterated the rise in the full-year 2016 constant-dollar trade gap as a share of real GDP to its highest level (3.37 percent) since 2008 (3.76 percent).

>As a result, the real trade deficit’s absolute sequential increase in the fourth quarter of 2016 ($77.4 billion) stayed the strongest such rise since these figures began being tabulated by the Commerce Department in 1999.

>The new GDP figures slightly upgraded fourth quarter services exports – from a record $685.4 billion to $685.5 billion. The sequential rate of increase inched up from 0.22 percent to 0.23 percent.

>The annual combined goods and services exports figure was upgraded a bit, too – from $2.1284 trillion (another all-time high) to $2.1288 trillion. And the 2016 rate of increase came in at 0.39 percent, rather than 0.37 percent.

>Yet the slew of import records reported in the advance GDP estimate rose fractionally as well.

>In the fourth quarter, overall imports are now estimated to have hit $2.7395 trillion annualized, as opposed to $2.7380 trillion. That 2.06 percent increase slightly exceeds the two percent figure reported previously.

>As for fourth quarter price-adjusted goods imports, where the advance report pegged them at a record $2.2548 trillion annualized (up 2.62 percent), the revised figures are $2.2533 trillion (still an all-time high) and 2.55 percent, respectively. 

>During full-year 2016, overall real imports were initially reported at $2.6901 trillion – up 1.11 percent on year. Both numbers were revised slightly higher – to $2.6904 trillion and 1.12 percent, respectively.

>Real goods imports numbers for full-year 2016, however, were downgraded a bit. Originally reported at $2.2101 trillion, or up 0.73 percent over 2015 levels, they are now judged to have been $2.2097 trillion – reflecting a 0.71 percent rise.

>Upward revisions were more substantial for inflation-adjusted services imports in 2016. Rather than rising 2.84 percent on year, to $477.6 billion, they are now estimated to have grown by 2.99 percent, to a new record $478.3 billion.

(What’s Left of) Our Economy: The Wage Inflation Story is Getting More Complicated

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compensation, ECI, Employment Cost Index, inflation, Labor Department, minimum wage, pay, wages, {What's Left of) Our Economy

Last week more evidence came in concerning claims that America is undergoing or verging on a new round of dangerous wage inflation (or any wage inflation), and the government has just provided a special bonus! The good people at the Labor Department, which tracks these trends, recently informed me that it not only keeps figures on overall compensation (the Employment Cost Index, or ECI), but that it also adjusts these numbers for inflation. So it’s possible to get a better fix on whether pay is keeping up with or trailing price changes in the rest of the economy – and also on how U.S. compensation nowadays has been performing in historical perspective.

First, the pre-inflation results from the latest ECI – which covers the second quarter of this year. For all private sector workers (whose pay is set largely by market forces, not government decisions), wages, salaries, and benefits combined increased by 2.35 percent over the second quarter of 2015. That’s better than the 1.79 percent year-on-year rise for the first quarter, and than the 1.90 percent improvement registered between the second quarters of 2014 and 2015. In fact, it’s the best year-on-year gain during the current recovery.

The trouble is, the current recovery is still a low bar. Annual increases dwarfing that 2.35 percent were common beforehand, and going back to 2001 (when the ECI was created). In fact, during the seven years of expansion covered by these latest ECI data, employment costs have risen by 15.16 percent total. That’s still well behind the 21.71 percent total increase during the previous recovery – which lasted only six years, and which is not widely viewed as a Golden Age for employees.  

Further, we shouldn’t forget about the impact of the latest burst of state and local level minimum wage hikes. However overdue you think they are or aren’t, it’s important to recognize that they have nothing to do with the underlying strength or weakness of labor markets.

When you adjust for inflation, however, a more complicated story emerges. On the one hand, over the last two or so years, there’s definitely been some overall compensation acceleration. After going nowhere for most of the current recovery, the real ECI rose by 1.50 percent year-on-year in the fourth quarter of 2014, and by 2.70 percent in the first quarter of 2015 (when, to be sure, many of these minimum wage hikes kicked in).

Since then, although the annual rates of increase have slowed markedly, they’re still much better than during the recovery’s early phase. The big question they raise going forward is whether they can stay above one percent, especially since the economy’s growth is slowing markedly.

Over a longer period of time, the current recovery’s real ECI performance looks better historically speaking, but not by a wide margin. During its seven data years, overall compensation is up a total of 3.10 percent. The figure for the previous (six-year) expansion? 2.36 percent.

Moreover, during the 1980s expansion, which lasted slightly longer than seven years, the real ECI advanced by 4.25 percent. During the 1990s recovery, which ran just under a decade, the real ECI was up 7.61 percent. In other words, their annual average gains were both considerably better than those of the current expansion.  (The data for these previous expansions is found in a separate Labor Department report.)

So here’s one way to think about wage inflation: If your working memories or knowledge of the U.S. economy don’t go back past Y2K, you might legitimately be concerned. If you’re aware of the nation before this century, not nearly so much.

(What’s Left of) Our Economy: No Inflation Take-off in Wages – or Even Close

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inflation, Labor Department, labor market, manufacturing, private sector, real wages, recovery, wages, workers, {What's Left of) Our Economy

More evidence appeared today that, if it’s true that inflation is starting to pick up (after years of deep slumber), America’s workers don’t deserve any blame. The Labor Department today released its latest data (for June) on overall price increases in the economy, and for price-adjusted wage increases. They and the department’s databases reveal that the workforce on the whole is barely, at best, keeping up with the cost of living.

According to the Labor Department, core inflation (i.e., prices with food and energy costs omitted, since they’re exceptionally volatile) rose 2.26 percent between June, 2015 and last month. How did inflation-adjusted wages do for the private sector? They rose only by 1.52 percent. (The Labor Department doesn’t include government workers’ wages in these statistics, since they’re determined by politicians’ decisions, not by the fundamental state of the economy.)

Workers did a little better between the previous Junes. Core inflation increased by 1.76 percent, and their price-adjusted wages improved by 1.84 percent.

But between June, 2013 and June, 2014, the story was substantially different. While core prices were increasing by 1.96 percent, real wages weren’t increasing at all. That is, they were completely flat.

Strengthening the case that real wage growth is anything but strong: June private sector wages saw a sequential drop of 0.19 percent, and have fallen for two of the last three months. As a result, hourly private sector pay is now down since March. And since the economic recovery began, in June, 2009, real private sector wages have risen only 3.49 percent.

The story in manufacturing, which historically has generated most of the economy’s best-paying jobs, is somewhat better over the short-run and somewhat worse over the long run.

Even though real manufacturing wages decreased on month in June (by 0.46 percent, much more than overall private sector pay) they rose 2.37 percent year-on-year – considerably faster than the private sector pace. Indeed, through May, after-inflation manufacturing wages had grown sequentially for eleven straight months.

June’s yearly manufacturing real wage hike was also more than twice as great as that between the previous two Junes – just 0.86 percent. But during the twelve months before, real manufacturing wages actually decreased – by 0.19 percent.

Longer-term, moreover, manufacturing remains a decided real wage laggard. Since the recovery’s June, 2009 onset, inflation-adjusted hourly pay has improved by only 0.93 percent.

Economists worry about wage inflation – and the tight labor markets it implies – because businesses have tended to react by raising prices to compensate, and that’s tended to prompt workers to press pay demands even more aggressively. The consequent spiral can be difficult to stop or even slow.

Of course, for this kind of action-reaction cycle to take hold, wages would first have to catch up with living costs. The June inflation and real wage figures show that workers might still be short of even that modest goal.

(What’s Left of) Our Economy: Medical Jobs are Still Where the Money Is

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compensation, doctors, healthcare, inflation, Jobs, pay, physicians, southeast, wages, {What's Left of) Our Economy

Even when I was a know-it-all teenager, I strongly suspected that my parents were right when they told me, “Be a doctor if you want to make the best living.” But judging from a new data dump by the U.S. Labor Department, they (and the countless others like them) were off-the-chart geniuses. For it shows that physicians flat-out dominate the rankings of America’s best-paying jobs.

These Labor Department statistics list wages for more than 800 occupations in all the nation’s metropolitan areas. So the total number of entries in this study – which you can examine on this spreadsheet – is 134,475. Then, the Department did something new. It adjusted these wages for the cost of living in these locations. And the results are startling.

Medical professionals occupied the top 242 slots in these rankings. And all but one category – nurse anesthetists in greater San Antonio, Texas – were MDs. Healthcare’s dominance extended much further down this ladder, too. Of the top 500 metro job classifications, medical professionals accounted for 488.

As expected, “chief executives” also do well in America. They represented the other classifications in the top 500, but there were only 12 of them in this group. And interestingly, they were clustered in the southeast (nine) and North Carolina in particular (six).

Not until ranking number 530 do you find a non-healthcare, non-chief executive job among the leading U.S. wage earners. That distinction belongs to economists in the Columbus, Ohio region. And remarkably, of the top 1,000 listings, only two others fell outside healthcare occupations and chief executives: training and development managers in Spartanburg, South Carolina (number 906) and judges and magistrates in some of the east suburbs of Los Angeles (number 962).

What about those information technology jobs that the conventional wisdom touts as the future of (worthwhile) U.S. employment? The first one showing up that’s a non-chief executive position comes up at number 1,362 – computer and information systems managers in Johnstown, Pennsylvania.

Some important qualifications need to be mentioned. These figures claim to measure actual pay per hour, but seem to leave out compensation like bonuses and stock options – so chief executive pay here could well be significantly understated. In addition, if national inflation (and therefore cost-of-living) data are controversial, you can bet that even more uncertainty surrounds regional figures. And of course, gauges of pay tell us nothing per se about job satisfaction or stress or anything else about non-monetary working conditions.

All the same, results this skewed toward one occupational field can hardly be ignored. They also track with healthcare’s growing share of the economy based on total spending. (It hit 17.5 percent in 2014 – up 5.3 percent over 2013 levels.) The next step for the Labor Department is to figure out how these patterns have changed over time. For now, though, it’s looking clearer than ever that my parents and their peers were right about high-paying jobs – though I’m pretty confident that they wouldn’t have advised me to move to Ft. Smith, Arkansas or Brownsville, Texas. That’s where the Labor Department tells us that doctors’ pay goes furthest.

Im-Politic: More Economic Roots of Political Anger

Tags

2016 election, Bernie Sanders, chattering class, compensation, Donald Trump, Im-Politic, inflation, manufacturing, non-supervisory workers, political class, Populism, recovery, workers

Some more data has just come out from the government on how much Americans have been making at the workplace lately, and if you work with them with a little intelligence, you can see what a lousy economic recovery the middle and working classes have experienced. P.S. Do you think that at least some in their ranks might be supporting Republican presidential front-runner Donald Trump?

The statistics come from the Labor Department’s series on total employee compensation. They’re not adjusted for inflation, but they include everything from wages and salaries to benefits to the monetary cost of paid leave, vacations, and the like.

For the broadest groups examined – like “all private sector workers” – the numbers provide some support for widespread claims that low recent jobless rates are finally tightening the labor market enough to drive up pay strongly. For example, although overall compensation between the fourth quarters of 2014 and 2015 rose by a mediocre 1.21 percent, the two previous comparable annual increases of 2.63 percent and 5.70 percent respectively. These average out to advances that are quite respectable by historical standards. (The data, though, only go back to 2004.) They certainly represent a faster advance than that for the three years before – 1.20 percent, 2.95 percent, and 1.05 percent respectively.

For the manufacturing sector, the results have been even better. Following four years of painfully sluggish growth in pay, total compensation jumped by 4.83 percent in 2013, 4.52 percent in 2014, and 4.82 percent last year. (All figures, again, are fourth-quarter-to-fourth-quarter.) In fact, it looks like potentially dangerous “wage” inflation is starting to take hold, doesn’t it?

Not exactly. And here’s why. These employee compensation figures don’t separate management and executives on the one hand from non-supervisory workers on the other, either for the entire private sector or for manufacturing. But they do provide economy-wide statistics for those employed in two good proxy categories: production occupations; and installation, maintenance, and repair occupations.

Workers in the former category have actually seen their total compensation fall slightly for the last two years, after good 2.81 percent and 3.32 percent gains. Workers in the latter category have recently been on a roller coaster. Their total compensation increased by 2.38 percent in 2013, surged by 4.28 percent in 2014, and then plunged by 1.55 percent last year.

The gap between these blue-collar workers and the rest of the American labor force becomes much clearer upon examining cumulative compensation increases since the current economic recovery began, in the second quarter of 2009. During that period, here are the total compensation gains for major groups of U.S. employees:

All private sector workers: +15.61 percent

All management, business, and financial occupations: +21.76 percent

All manufacturing workers: +20.12 percent

All production workers: +8.96 percent

All installation, repair, and repair workers: +8.14 percent

When looking at those last two categories in particular, please keep in mind that these represent the trends over nearly seven years. Please also keep in mind that, although inflation rates have been weak judging by the official figures, prices for housing, health-care, and higher education have been rising at much faster rates.

In other words, once they figure out a serious response to the Trump insurgency (and, in many respects, to the success of Democratic presidential challenger Bernie Sanders), America’s political, chattering, and policy classes will be entitled to scorn and bemoan and bewail and condemn the success of populist, outsider political candidates. But not one moment before.

(What’s Left of) Our Economy: Inflated Claims of Real Wage Inflation

Tags

BLS, blue-collar workers, Bureau of Labor Statistics, inflation, inflation-adjusted wages, labor market, private sector, productivity, recession, recovery, wages, workers, {What's Left of) Our Economy

This morning’s real wage figures from the Bureau of Labor Statistics (BLS) once again vividly remind us how important baselines are in measuring economic trends and evaluating their strengths. They just as vividly underscore the importance of overall inflationary and deflationary trends in the economy in calculating these wage data – which especially over the short term have nothing to do with workers’ genuine earnings, bargaining power, and success in keeping up with living standards. To me, the bottom line for these latest (January, 2016) numbers is that real wages in America continue to go nowhere.

BLS reported today that inflation-adjusted wages for the entire private sector rose by 0.38 percent month-on-month – the best sequential advance since August’s virtually identical reading. (Government workers aren’t measured here because their pay is determined overwhelmingly by politicians’ decisions, not fundamental labor market conditions.)

Moreover, the December monthly constant dollar wage improvement was revised up from 0.09 percent to 0.19 percent. As a result, the December year-on-year (and full-year 2015) figure increased from 1.82 percent to 2.01 percent. That’s the best such performance since 2008 – when many employers facing a strengthening recession were quickly shedding less experienced, lower-paid workers and therefore statistically pushing real wages way up.

Yet the new January number (which, like December’s, is still preliminary), means that January, 2015-January, 2016 after-inflation wage increases totaled only 1.14 percent. That’s much lower than 2014-2015’s 2.43 percent, but much higher than the previous 0.39 percent advance. In fact, the most recent January-January increase was the biggest such improvement 2009’s 3.70 percent – which was also boosted by the aforementioned recession-era downsizing strategy.

At the same time, here’s where those problematic economy-wide inflation data come in. January, 2015 was one heck of an unusual inflation month. Sequentially, core prices fell then by 0.64 percent. That’s the biggest drop by far since December, 2008, when the financial crisis was peaking and the economy seemed about to fall off a cliff. The harsh winter weather at the end of 2014 and the start of 2015 was clearly a big reason, and it has major effects on all comparisons based on January, 2015.

Another problem with this (and previous) January data: As I’ve previously noted, lots of state and local minimum wage hikes have kicked in during those months. These government-mandated decisions have as little bearing on labor market conditions as the government’s own pay levels.

So my own preference is to look over the longer term, and in particular, to compare real wage trends among recent economic recoveries – which provides the best apples-to-apples data. Unfortunately, BLS creates a problem here. Its figures on inflation-adjusted wages for all private sector workers only go back to March, 2006. So they can reveal what’s happened to these wages since the current recovery began – in June, 2009. (They’re up in toto by 3.39 percent.) But they can’t tell us what happened in previous recoveries.

One way to address the problem is to use BLS’ figures for production and non-supervisory private sector workers. This is of course a different group than all workers, but the data here go back to 1964, and these “blue collar” Americans currently make up more than 82 percent of the entire private sector workforce. As a result, they’re pretty representative.

During the current recovery, price-adjusted wages for this large group of U.S. workers is up 3.85 percent – a faster rate than that for all workers. And it’s a much faster rate than for the previous, bubble-era recovery (which was only a little shorter). Then, real blue-collar wages inched up by only 0.35 percent. Wages during this expansion are up less than during its 1990s counterpart (6.64 percent), And that’s the case even factoring in their different durations. That “Clinton boom” lasted nearly ten years – about one and a half times longer than the current expansion. But real wages advanced by nearly twice as much.

During all these expansions, real blue-collar wages have performed better than during the so-called Reagan recovery of the 1980s. During that expansion, which like the current recovery also lasted about six and one half years, these wages actually fell by 1.86 percent. Even though the significant expansion preceding the Reagan recovery was much shorter – lasting from only March, 1975 to the end of 1979 – inflation-adjusted blue-collar wages sank even faster – 3.19 percent. Then, of course, inflation was at recent historic highs.

Therefore, the current recovery looks pretty good, real wage-wise. But there’s one other expansion we can examine – that during the 1960s. Data for the entire upswing, which ran from February, 1961 through November, 1969, isn’t available from BLS. But between January, 1964, when the numbers begin, through the expansion’s end, inflation-adjusted non-supervisory wages shot up by 8.58 percent. No wonder this period is seen as a Golden Age by many of those old enough to remember it firsthand.

Two other developments also take much of the shine off today’s wage growth. First, the current expansion is getting long in the tooth, and thus it’s unclear how much more inflation-adjusted wages will rise going forward. And second, despite the big real wage increases of the 1960s, America’s productivity was rising much faster than today as well. So “let the buyer beware” still seems like good advice for information consumers today when confronted with claims of worrisome wage inflation.

(What’s Left of) Our Economy: Beyond the Fed Tightening Debate

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Ben Bernanke, bubbles, Employment, Federal Reserve, Financial Crisis, inflation, interest rates, Janet Yellen, Jobs, monetary policy, moral hazard, recovery, zero interest rate policy, ZIRP, {What's Left of) Our Economy

The latest “Fed Day” has now come and gone. The Federal Reserve’s decision-making Open Market Committee has issued its latest monthly pronouncement on where it will set the short-term interest rate it directly controls. (It will stay near zero, where it’s been since the end of 2008). In the process, the central bank revealed a lot about how cheap or expensive the cost of borrowing will be in the U.S. economy at least until its next meeting, in mid-December.

And as always, the effects of this Fed Day will surely ripple much wider, as many investors, businessmen, and consumers look to each new central bank monetary policy statement for clues as to the economy’s health and prospects; for indications of how the Fed will act in the foreseeable future; and for a sense of what kind of rate environment financial markets will face – a key determinant of their performance.

The run-up to today’s Fed statement generated somewhat less suspense or anxiety (take your pick) than lately has been the case. After all, the recent slowing of the American and global economies seemed certain to have eliminated the chance of the Fed raising rates from their current levels just above zero. Chair Janet Yellen and other leading Fed lights, at least, have worried that such tightening could choke off too much growth and therefore hiring, while boosting the odds that a dangerous deflationary cycle could take hold and weaken the economy still further. (Employment and price levels are the Fed’s two main official statutory concerns – its “dual mandate.”)

Yet today’s statement is likely to keep raging the fierce debate in the economics, business, finance, and political communities over what the Fed should do – and what its recent unprecedentedly easy money policies have and have not accomplished so far. For the record, I favor beginning to tighten as soon as possible, for two related reasons.

First, I’ve feared that the artificial life support provided by years of Fed stimulus has so effectively masked the economy’s real weakness that the excesses that built up during the previous bubble decade (also largely enabled by the Fed) can’t undergo painful but necessary corrections. Therefore, the hard work of creating a truly durable foundation for American prosperity keeps getting postponed.

Second, even if the Fed’s gargantuan support prevented a 1930s-style depression, the credit flood it continues to supply is now actually encouraging further excesses – for reasons I spelled out in a post last month. So I’m worried that the United States – and by extension, the world, given America’s still outsized role – can’t avoid another financial crisis without tightening (i.e., starting to normalize) monetary and credit conditions; reimposing genuine market disciplines on economic activity; and making sure that risk is accurately priced (and indeed priced at all).

But as far as I’m concerned, my own views on tightening now or later are much less interesting than what this debate reveals about how well the economy’s ills are understood by both supporters and opponents of the Fed’s record these last few years. I’m simplifying a bit here, but I worry that the looser money advocates – include the apparent majority of Fed officials – are too focused on supporting growth (and hiring) literally at all costs, without thinking about the quality and sustainability of that growth. Weirdly, they appear to understand fully just how weak the economy remains, but seem to believe that all that’s possible is to prop up growth and employment indefinitely with monetary steroids.

I’m also, however, concerned about tightening arguments. Its champions seem to understand the intertwined economic and financial dangers of fostering low quality growth. But most of them appear to overestimate the economy’s underlying strength, and seem to believe that raising interest rates (at whatever pace, to whatever heights) will quickly restore genuine economic health.

Unless this paradox is somehow resolved, it’s hard to imagine recipes for solid recovery emerging that are properly targeted and based on realistic expectations of turnaround.

To be fair, neither side in this debate, much less Fed officials themselves, believes that monetary policy alone can fix the economy. Of course, the favored policies vary widely, but everyone I’m familiar with emphasizes the need for the rest of the government to start doing its part. But this observation brings up another concern. Undoubtedly, the forces that have produced and maintained D.C. gridlock are strong, and show few signs of weakening. But arguably, one of these has been the Fed itself – which may be creating a form of moral hazard in American politics.

For just as overly indulgent policies in economics and finance can convince businesses that, however massively they mess up, Uncle Sam will come to the rescue, it’s certainly possible that, at least in the backs of their minds, U.S. politicians are convinced that they can continue grandstanding unproductively because the Fed will keep the economy slogging along acceptably enough to prevent major voter backlash – and thus keep them in office.

In this vein, it’s fascinating – and a little disturbing – that former Fed Chair Ben Bernanke has also just suggested a belief that the Fed can and should back stop dysfunctional governing systems. In an interview last week with the Financial Times, Bernanke stated that “One of the Federal Reserve’s key functions is to act quickly and proactively when the legislative process is too slow.” Although the central bank was structured to be independent of short-term political considerations and pressures from office-holders, I’ve never heard anyone ever aver that the Fed should in any way substitute for elected politicians.

Does Bernanke’s successor, Yellen, agree? She’s scheduled to appear before Congress in early December. Maybe someone could ask?