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

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automotive, competitiveness, contract talks, Detroit automakers, inflation, inflation-adjusted wages, low road, manufacturing, real wages, recovery, United Auto Workers, wage inflation, wages, {What's Left of) Our Economy

Even if you keep emphasizing that wage figures aren’t the only, or even best, measure of U.S. employee compensation available, you’ll have difficulty saying or writing the term “wage inflation” after seeing the new real wage figures available from the Labor Department.

According to the new data, inflation-adjusted wages for private sector workers fell by 0.38 percent from May to June – the worst monthly performance since February, 2013. (My numbers come straight from the raw data posted on the Labor Department website.) Just as bad, May’s figures were revised down from a 0.09 percent decline to a 0.19 percent drop. On a year-on-year basis, June’s 1.75 percent after-inflation wage increase was the lowest since last December.

The year-on-year figures get interesting because they reveal what a low bar has been set for wage-inflation worries. Those June, 2014-15 real wage gains were not only much better than the previous year’s – which were zero. They were the best June-June numbers since 2008-09. During that stretch, when the deep recession was turning into a weak recovery, real wages shot up by 4.14 percent. But that increase followed a June, 2007-2008 fall of 2.17 percent. In other words, choices of baselines count.

But here’s one baseline that should be completely uncontroversial. The current recovery is commonly dated to mid-2009. Since that June, American private sector workers have seen wages rise a grand total of 1.65 percent faster than the cost of living. And the anointed experts wonder why so many consumers remain cautious (when they’re not bemoaning this prudence)?

As has been the case for way too long, manufacturing’s real wage performance kept lagging that of the overall private sector in June. Month-to-month, its constant dollar wages sank by 0.47 percent – the biggest such drop since August, 2012. Moreover, the year-on-year manufacturing real wage figures show the importance of baselines even more strikingly than their private sector counterparts.

The June, 2014-June, 2015 manufacturing real wage rise of 0.86 percent was the best June-June increase since that early 2008-2009 late-recession period (when it surged by 5.10 percent). In fact, it’s only the second increase since then. Yet since the recovery began, inflation-adjusted manufacturing wages are down by 1.59 percent, adding to the evidence that the sector’s strong comeback following a scary recessionary nosedive has come largely at the expense of its workforce.

Finally, the new real wage data provide some essential background for just-started new round of Detroit automakers’ contract talks with the United Auto Workers’ union. Numbers for sectors as specific as autos and light trucks (together) per se lag the broader figures by a month. But in May, they plunged 1.76 percent on month, after increasing by 1.19 percent in April. From May, 2014 to May, 2015, they fell 1.40 percent – nearly twice as much as the 0.73 percent decrease on year the previous May. And since the recovery’s June, 2009 technical onset, they’ve dropped by 9.86 percent. Detroit’s low road back to competitiveness, in other words, keeps getting lower.

(What’s Left of) Our Economy: Manufacturing’s Low-Road Comeback Strategy is Failing

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Boston Consulting Group, competitiveness, labor productivity, low road, manufacturing, manufacturing renaissance, multi-factor productivity, productivity, wages, {What's Left of) Our Economy

Yesterday’s manufacturing wage data from the Labor Department contains bad news not just for domestic industry’s workforce. The weak results also indicated that, if U.S.-based manufacturers think they can regain competitiveness via what analysts call the “low road” of labor cost cutting, they’re wrong so far. Why so? Because the same Labor Department has also revealed that U.S. Manufacturing’s productivity is faltering as well.

To recap yesterday’s numbers, U.S. manufacturing wages fell by 0.48 percent from August to September after inflation, and are now down 0.38 percent year on year and 2.61 percent during the current economic recovery to date. By contrast, overall real private sector wages are actually up slightly since the recession ended.

But despite the falling inflation-adjusted wages, the rate of manufacturing labor productivity growth has slowed significantly even since the expansion of the 2000s – which no one regarded as a golden age of American industry. During that expansion’s 20 quarters, which of course included the housing and credit bubbles, manufacturing’s labor productivity grew by a cumulative 25.31 percent (1.27 percent per quarter on average). During the current recovery, which has lasted 16 quarters, manufacturing labor productivity has advanced by a total of 14.39 percent (0.90 percent per quarter on average).  (All these figures are calculated from the statistics on the Labor Department’s interactive productivity databases.)

Also of interest: In the 11 quarters that have passed since the Boston Consulting Group published its first prediction of an onshoring-driven U.S. Manufacturing renaissance, in August, 2012, labor productivity in the sector has grown by 4.89 percent. In the 11 quarters before, manufacturing labor productivity increased by 9.69 percent – nearly twice as fast.

The multi-factor productivity data for manufacturing only go through 2012, and are kept annually, not quarterly. But these figures, which take into account all the inputs for manufacturing operations, tell the same story.

From 2001 through 2007 (roughly the time of the previous economic recovery) multi-factor productivity in domestic manufacturing improved by 15.67 percent in toto, or 2.61 percent annually on average. From the start of the present recovery (in 2009) through 2012, it grew by 5.02 percent – 1.67 percent on average each year.

An industry that’s cutting wages and still getting less output per head, along with less output per all inputs, isn’t an industry experiencing an historic comeback. It’s one whose competitiveness by crucial measures looks less impressive all the time.