(What’s Left of) Our Economy: As Political Wars Rage, U.S. Wages Keep Stagnating

Tags

inflation-adjusted wages, manufacturing, private sector, real wages, Russiagate, Trump, wages, workers, {What's Left of) Our Economy

The tragedy of the continuing Trump and “Russiagate” political battles was perfectly illustrated yesterday by the release of the Labor Department’s newest data on inflation-adjusted wages. As the administration and its foes intensified a fight that’s ultimately over the legitimacy of the president’s White House win last November, the statistics made clear that the growth of Americans’ paychecks is still deeply stuck in the mud.

The real wage figures are always one month behind their pre-inflation counterparts, so the new numbers only take us through April. And they and the March results are still preliminary. At first glance, the news looked mixed. On a monthly basis, wages for the private sector (these data leave out government workers’ wages, since they’re determined largely by politicians’ decisions, not market forces) inched up only 0.09 percent in April. That was worse than March’s 0.28 percent improvement, and that March figure was revised down from the initial 0.47 percent reading.

The picture was somewhat brighter for manufacturing; April’s sequential increase of 0.46 percent was its best since August, 2015 (0.66 percent). But the March rise was downgraded from 0.37 percent to 0.28 percent.

And no one should be happy about the year-on-year changes. April’s was 0.37 percent for the private sector as a whole, and 0.46 percent for manufacturing. Between the previous Aprils, the numbers were 1.42 percent and 1.79 percent, respectively.

The cumulative results during this nearly eight-year old economic recovery? After-inflation private sector wages have increased only 4.07 percent, and manufacturing wages are up only 1.49 percent.

In other words, American workers – and especially those in manufacturing – have all but lost nearly eight years when it comes to their ability to keep up with the cost of living. And given Washington’s focus on the political wars, more lost months at the least are likely on the way.

(What’s Left of) Our Economy: With the Fed Seemingly Set to Tighten Again, Real Wages are in Recession

Tags

BLS, blue-collar workers, Bureau of Labor Statistics, Federal Reserve, Great Recession, inflation-adjusted wages, manufacturing, real wages, recovery, Trump, wages, {What's Left of) Our Economy

If you had any doubts that American workers are experiencing a dramatic slowdown in inflation-adjusted wages, the newest figures on this pay indicator just put out by the Bureau of Labor Statistics (BLS) should emphatically dispel them. In fact, they make clear that the nation is now stuck in a technical real wage recession – meaning that constant dollar hourly wages have fallen on net for at least two straight quarters. Moreover, when looking over the last two years, the worst results have been registered in price-adjusted hourly pay for blue-collar workers.

Keep that in mind if the Federal Reserve, as expected, announces a new tightening of monetary policy this afternoon, in large measure because the U.S. labor market supposedly has healed the wounds suffered during the Great Recession and the historically weak recovery that followed it.

For all private sector workers and for manufacturing workers, constant dollar hourly pay is down 0.19 percent since last March. And for blue-collar workers in these swathes of the economy, the story actually is slightly worse. Production and non-supervisory employees in the private sector overall have seen their after-inflation hourly pay fall by 0.33 percent since last February. For their counterparts in manufacturing, real wages are down 0.12 percent since December, 2015. (Government workers’ wages aren’t tracked by BLS, because they’re set largely by politicians’ decisions, not by market forces. Therefore, they tell us little about the economy’s fundamentals.)

And the new real wage figures add to the evidence – presented at RealityChek last month – that increases in such take-home pay adjusted for prices have slowed dramatically over the last year.

Here are the new numbers for all private sector workers:

February, 2014-15: +2.03 percent

February, 2015-16: +1.33 percent

February, 2016-17: 0 percent

And the new results for private sector production and non-supervisory workers:

February, 2014-15: +2.15 percent

February, 2015-16: +1.77 percent

February, 2016-17: -0.33 percent

Here are the figures for all manufacturing workers”

February, 2014-15: +1.33 percent

February, 2015-16: +1.32 percent

February, 2016-17: +0.09 percent

And finally, here are the new data for blue-collar manufacturing employees:

February, 2014-15: +1.90 percent

February, 2015-16: +1.75 percent

February, 2016-17: -0.57 percent

In fact, the only piece of good news in the new BLS report is that the January and February real wage figures are still preliminary. But unless they see unprecedented upward revisions, or constant dollar wages enjoy a strong rebound in the next few months, expect the real wage numbers to start turning up the political heat both for a Federal Reserve that’s apparently thinking “Mission Accomplished,” and a president apparently convinced that his mere election is speeding up the recovery.

(What’s Left of) Our Economy: Real Wage Trends Seem to Clash with the Fed’s Rate Hike Decision

Tags

ECI, Employment Cost Index, Federal Reserve, inflation-adjusted wages, interest rates, Janet Yellen, labor market, real wages, recovery, wages, {What's Left of) Our Economy

As I’m sure most of you know, the Federal Reserve this week decided to raise the short-term interest rate it controls directly by a quarter of a percentage point – to a range of between 0.50 percent to 0.75 percent. (This “Fed funds rate” is officially a target and is always expressed as a range.) And since the Fed funds rate can strongly influence borrowing costs throughout the economy, the hike – all else equal – is likeliest to slow growth in the short run at least. It’s the price that the central bank thinks the nation needs to pay to ward off inflation, and start returning rates to the historically normal levels widely thought to be essential for long-term economic health.

This key Fed decision (only the second rate hike in more than nine years), still leaves the funds rate near all-time lows. I won’t comment here on the wisdom of this move. But the timing makes me wonder if the central bankers had seen the latest American inflation-adjusted wage figures. For although Chair Janet Yellen has made clear her belief that the U.S. labor market keeps improving enough to warrant such tightening, the new real wage numbers look like they’re sending the opposite message.

Let’s start with the after-inflation wage figures that came out on Thursday. They showed that these wages in the private sector fell in November by 0.37 percent over October levels. That’s the worst monthly performance since the 0.39 percent decrease in February, 2013. Moreover, in October, real wages inched up by only 0.09 percent. Is the wheel turning? (The wage figures don’t include government workers because their compensation is set largely by politicians’ decisions, not market forces. Therefore, they reveal little about the underlying state of the economy.)

The year-on-year results don’t provide much encouragement, either. These wages’ 0.75 percent growth was the most sluggish since the 0.29 percent annual improvement in October, 2014. Between the previous Novembers, real wages advanced by 1.92 percent.

As a result, real wages since the current recovery began in mid-2009 are up only 3.59 percent. That’s over a more than seven-year stretch!

The picture if anything looks worse in manufacturing. There, November inflation-adjusted wages sank by 0.73 percent on month – the biggest decrease since the 0.76 percent falloff in August, 2012. In October, these wages increased by 0.28 percent on month.

The annual November data? Real manufacturing wages rose by just 0.93 percent year-on-year. That’s the slowest pace since the 0.38 percent in December, 2014. From November, 2014 to November, 2015, price-adjusted manufacturing wages increased by 1.90 percent.

And since the current recovery began, constant dollar manufacturing wages have risen only by 0.84 percent. That’s almost a rounding error.

Many economy bulls insist that the wage figures aren’t all that helpful, because they leave out non-wage benefits like health insurance coverage. The government keeps overall compensation data, too. But in inflation-adjusted form, they come out on a slightly less timely basis than the wage figures. All the same, we have them through the third quarter of this year, and they’re somewhat better – though not game changers.

Between the second quarter and third quarters, the Employment Cost Index (ECI) that captures these trends increased by 0.29 percent in real terms for the private sector. That’s a distinct improvement ove the 0.48 percent sequential decrease in the second quarter, but hardly torrid, since we’re talking about a three-month period.

Indeed, in the third quarter, the after-inflation ECI was up only 0.78 percent year-on-year – much less than the 1.89 percent rise the year before.

A little more impressive is the real ECI over the longer-term. During the current recovery, it’s increased by 3.40 percent after inflation. That’s better than the 2.36 percent increase during the previous recovery. But don’t forget – that expansion only last six years (from the end of 2001 to the end of 2007).

Better yet are the manufacturing ECI numbers. The last quarterly increase was also 0.29 percent – and it followed a second quarter drop almost identical to the private sector’s (0.49 percent). But year-on-year, the real manufacturing ECI was up faster than the overall private sector ECI (0.89 percent), though that, too, represented a big dropoff from the previous annual increase of 2.33 percent.

The real manufacturing ECI is also up a good deal more during this recovery than the overall private sector ECI – 4.72 percent. And that’s a nice improvement over the previous recovery’s 1.99 percent, even considering their different durations.

Chair Yellen and her Fed colleagues keep insisting that their interest rate decisions have depended on how the latest economic statistics have been looking. Which tells me that, last week, the central bankers must have been looking at data other than the real wage and compensation figures.

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

Tags

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: Manufacturing Ends its Jobs Recession

Tags

inflation-adjusted wages, Jobs, manufacturing, non-farm jobs, real wages, recession, recovery, wages, {What's Left of) Our Economy

Manufacturing ended its technical jobs recession in January, as the sector’s 29,000 employment increase represented the strongest monthly rise in more than a year. Most revisions were positive, but manufacturing’s year-on-year job gains (45,000) in January were still among the lowest in the last three and one half years.

Nonetheless, industry’s share of total non-farm employment rose and is no longer at record low levels, and though still a recovery-era laggard, manufacturing wages showed their most strength since recessionary 2009 – aided in part by the Labor Department’s latest benchmark data revisions. These changes also finally pushed inflation-adjusted manufacturing wages back above their levels at the outset of the current economic recovery.

Here’s my analysis of the latest monthly (January) manufacturing figures contained in this morning’s employment report from the Bureau of Labor Statistics:

>Manufacturing employment in January continued a recent run of generating good news, as the best monthly net increase in payrolls (29,000) since November, 2014 helped the sector exit its latest jobs recession. Prior to this morning’s release, manufacturing employment had fallen on net for seven straight months – more than the two consecutive negative quarters central to most definitions of GDP recessions.

>Most of the latest manufacturing jobs revisions were positive as well. December’s 8,000 increase was upgraded to 13,000, and November’s previously reported 2,000 improvement now stands at 3,000. October’s last reported 3,000 advance, however, was downgraded to 2,000.

>The better employment numbers also meant that manufacturing jobs are no longer at an historic low as a percentage of total non-farm jobs (the Bureau of Labor Statistics’ employment universe). As of the previous jobs report, this figure stood at 8.61 percent. It has now inched up to 8.62 percent.

>Manufacturing’s January year-on-year jobs performance, however, was less impressive. Industry added 45,000 new positions on net over January, 2015 levels. But this increase was one of the lowest such totals since July, 2013.

> In fact, although it topped December’s upwardly revised 33,000 rise and November’s similarly upgraded 42,000, it was well below October’s 68,000 and September’s 92,000.

>The yearly gap in job creation for January, 2016 was even greater when compared with January, 2014-15 (217,000) and January, 2013-14 (114,000).

>Since manufacturing hit its 2010 employment bottom, the sector has regained 903,000 (39.38 percent) of the 2.293 million jobs it lost during the recession and its aftermath. By contrast, the private sector overall lost 8.801 million jobs from the recession’s December, 2007 onset through its February, 2010 absolute employment low. Since then, it has increased net employment by a shade under 14 million.

>In fact, whereas total private sector employment is now 4.58 percent higher than at the recession’s beginning, manufacturing employment is still 10.11 percent lower.

>The January jobs report featured some of the best manufacturing wage numbers since the recovery began. But comparisons are complicated by the benchmark revisions to earlier data incorporated by the Bureau of Labor Statistics in its newest release.

>Manufacturing wages before adjusting for inflation increased in January by 0.31 percent on month – the fastest rate since August’s 0.63 percent. That gain was also much faster than December’s 0.04 percent (which itself was revised up from a 0.04 percent decrease), and helped produce a year-on-year January manufacturing wage boost of 2.56 percent. In turn, that result would have been the greatest such increase since March, 2014’s 2.53 percent.

>But the unusual (0.16 percent) upward revision in December’s current dollar manufacturing wage level pushed that month’s year-on-year increase to 2.65 percent. That’s manufacturing’s best such performance since October, 2009 (3.03 percent).

> October and November monthly manufacturing wage gains were also upgraded, but these revisions were only about half as great (0.16 percent) as that for December.

>By March, 2010, when manufacturing was in clear expansion mode, those yearly wage gains dropped all the way down to 0.74 percent. It’s an open question whether the latest wage increases will last longer.

>At the same time, even some of manufacturing’s strong recent wage gains trailed those of the private sector as a whole (whose data were also revised in that benchmark exercise). For example, in January, private sector wages before inflation advanced by 0.47 percent sequentially, though that month’s year-on-year improvement of 2.54 percent slightly lagged manufacturing’s.

>Longer term, manufacturing’s wage-laggard status is even clearer. Since the current economic recovery began, in mid-2009, its pre-inflation wages are up less (11.25 percent) than overall private sector wages (14.68 percent).

>Manufacturing’s wages have under-performed after adjusting for inflation as well. The latest Labor Department figures are from December, and showed that in real terms, manufacturing wages were up sequentially by 0.09 percent – the same pace as that of the overall private sector.

>Year-on-year, December real wages were up by 1.90 percent for manufacturing, and by 1.91 percent for the private sector – which also, however, makes clear that manufacturing has been narrowing the gap.

>Since the recovery began in mid-2009, real manufacturing wages are up only 0.09 percent, whereas inflation-adjusted pay in the private sector is up 3.01 percent. But however modest that increase, it means that real manufacturing wages have finally made back all of the losses they experienced during the recovery.

(What’s Left of) Our Economy: Has Wage Inflation Come and Gone?

Tags

Financial Crisis, inflation-adjusted wages, manufacturing, real wages, recession, recovery, wage inflation, wages, {What's Left of) Our Economy

I took the early afternoon off yesterday to see “The Force Awakens”with the offspring, so I didn’t get a chance to post on yesterday’s inflation-adjusted wages figures from the Labor Department. But they’re definitely worth noting, since they represent another set of full-year 2015 data (yes, they’ll be revised, too), and since they underscore how wage inflation seems to exist only in the eye of beholder economists. In the process, though, they underscore how crucial choosing baselines is to identifying economic trends.

The monthly real wage increase of 0.09 percent in December for the private sector matched November’s figure (which was unchanged), and it brought the year-on-year rise to 1.82 percent. And here’s where the baseline issue comes in. Inflation-istas will surely observe that this preliminary number handily beat that for the previous December (1.17 percent), and was by far the best annual real wage December-to-December increase on record (though the data series only goes back to 2006). Here’s how the data look in chart form:

Yet skeptics, like me, can point out that the monthly year-on-year increases dropped off significantly in the latter part of 2015 – not coincidentally, as the economy weakened. From January, 2014 to January, 2015, for example, inflation-adjusted wages advanced much faster – by 2.43 percent. By June, the rate was back down to 1.75 percent. It recovered to 2.42 percent by October, but then retreated to 1.83 percent in November. The graph below shows this loss of momentum:

Moreover, during the six-and-one half years since the current economic recovery began, inflation-adjusted wages are up only 2.81 percent total. And here’s oone troubling conclusion – maybe whatever wage “inflation” the economy has generated recently has come and gone?   

The wage inflation story in manufacturing looks a little more convincing, especially over the medium term. But there could be a big qualification, which I’ll get to in a minute. After-inflation pay in the sector rose 0.09 percent on month in December, too. And November’s sequential increase of 0.19 percent was revised up from zero. But the 0.09 percent monthly increase previously reported for October was downgraded to a 0.09 percent drop.

Manufacturing’s December-to-December, and thus full-year 2015, constant-dollar wage increase came to 1.80 percent – a slower improvement than for the private sector as a whole. But that still amounted to the sector’s best December-to-December real wage increases by far since 2008, as this chart shows:

Moreover, throughout last year, manufacturing’s annual wage momentum strengthened. In January, it stood at only 1.53 percent. That rate of growth fell to 0.96 percent in June, and then bounced back pretty consistently for the rest of the year, as illustrated by this chart.

 

But one big reason may not be so encouraging. With manufacturing now in another jobs recession, it could be that companies are repeating a practice that became common after the financial crisis: Laying off many of their least experienced employees in an effort to hang onto their veteran talent in historically awful business conditions. As a result, while employment levels cratered in 2008 and 2009, real wages actually increased strongly, since longer tenured – and usually better-paid – workers became bigger shares of the total workforce. It’s too early to say if the latest wage uptick isn’t the same kind of statistical fluke, but no one can rule this prospect out, either.

Further, during the recovery, after-inflation manufacturing wages literally haven’t grown at all. Among the other implications – pay levels in industry began falling once again as hiring of junior workers resumed as the crisis eased. Then, of course, the entire economy was in recovery mode. Now it seems to have stagnated at best, and could be slipping into recession. In other words, don’t expect a real revival of real manufacturing wages any time soon.  

 

 

Im-Politic: Will Trump-Bashers Start Blaming the Economy’s Victims?

Tags

2016 election, college premium, debt, Donald Trump, Economic Policy Institute, education, Financial Crisis, Im-Politic, incomes, Mainstream Media, manufacturing, Marketwatch.com, offshoring, real wages, recession, The Race to the Bottom, Tim Mullaney, Trade, wages

I guess it was only a matter of time before the Mainstream Media’s hostility to Donald Trump’s presidential candidacy showed signs of moving into its next phase. Its mainstays have blasted the Republican front-runners’ own views and business record and character. They’ve warned that at least some of his supporters are outright racists and other forms of unquestionably bigoted extremists.

Now at least one writer has decided to dump on that large (and perhaps overwhelming) share of Trump-Nation motivated by sagging and even falling incomes. According to Marketwatch.com columnist Tim Mullaney, not only do the downwardly mobile (presumably) whites deserve no sympathy for their plight. They’re the ones who are overwhelmingly responsible.

In Mullaney’s words: “[I]f you’re 45-plus and thinking life passed you by because you didn’t understand the necessity of an education any time after 1975, you were too hormone-addled at 18 to grasp something that had long been obvious.

“When Trump’s base was coming of age, John Naisbitt’s ‘Megatrends’ was a best-seller for a full two years. You couldn’t read it or even hear about it much (and it spawned dozens of books and too many articles and TV segments to count) without understanding factories were closing and not coming back, and people who grew up wanting that life needed a Plan B. The 1982 recession, which launched Barack Obama’s career as a community organizer in neighborhoods hit by steel-mill closings, made it pretty obvious too.”

Mullaney says his background has innoculated him against “liberal elitist” charges, so let’s focus on something that’s more important. This indictment is factually wrong and analytically shortsighted.

As I’ve reminded Mullaney on Twitter, Trump’s support among the college-educated is anything but negligible. And one big reason is that in recent decades the oft-touted wage premium received by college grads over their less-educated counterparts hasn’t prevented their own wages from stagnating and even worse. In other words, more education is a great bet for ensuring that incomes will escape the massive hit taken by the less educated. But that’s not because graduates’ wages have been killing it. It’s because they’ve been declining less than the wages for those lacking a Bachelor’s degree – as this stunning chart shows:

 

Year	Less than high school	High school	Some college	College	Advanced degree
2007	0.0%	0.0%	0.0%	0.0%	0.0%
2008	-1.1%	-0.6%	-1.3%	-0.4%	0.5%
2009	0.5%	1.7%	0.0%	0.4%	4.2%
2010	-2.9%	-0.1%	-1.3%	0.5%	3.3%
2011	-4.1%	-2.1%	-4.0%	-2.3%	0.3%
2012	-4.7%	-2.9%	-5.6%	-1.3%	2.8%
2013	-5.7%	-3.7%	-5.8%	-0.7%	2.2%
2014	-5.2%	-3.7%	-5.9%	-2.0%	0.0%

The bottom line is the cumulative change, meaning that during this period, after-inflation wages for the college-educated actually fell by two percent.  And even for holders of advanced degrees, they only stayed flat.

Nor, as Mullaney (reasonably) supposed, is widespread wage deterioration simply a consequences of the financial crisis and its punishing aftermath. Data compiled by the Economic Policy Institute (the source of the above material, too), show that from 1973 to 2007 (the final year before the recession struck), the wages of college-educated Americans increased by only 14.79 percent. That’s a 34-year period!

It’s true that, even for those who completed “some college” during that longer period, inflation-adjusted wages dipped by 0.65 percent, and they were off by more for those with only high school diplomas or less. But when you throw in the towering levels of student debt so many Americans have amassed in recent years, the case for finishing college looks like even less impressive.

Mullaney’s column also overlooks the heavy price the nation as a whole has paid for the de-industrialization that has eliminated so many middle class job opportunities for working class Americans. Of course, a large percentage of those jobs were wiped out by automation or other efficiency gains. But a large percentage are just as gone because clueless American trade policies either encouraged the offshoring of factories (and labs) to low-income countries or ignored the damage inflicted by predatory competition from higher income countries like Japan. And as I’ve long written, when Washington encouraged downwardly mobile Americans to resort to borrowing to maintain the living standards undermined by these lost incomes, the financial crisis became inevitable.

Nor, as I found out when researching my book The Race to the Bottom back in the late-1990s, more education wasn’t insulating American workers from these globalization-related threats because higher wage, knowledge-intensive jobs were being offshored as well (or taken by high skill H-1B immigrants) and because every other government on earth – including those in low-income countries – was working frantically to better educate its workers, too. And their numbers were immense enough to hold their own wages far below levels in the developed countries.

Moreover, as I also pointed out on Twitter, Trump’s backing among the college educated (and the even better educated) could well be much higher than many polls are showing. The reason? Many such voters are embarrassed to tell telephone pollsters their true political leanings. The evidence? Trump gets much better numbers in on-line polls than in phone surveys.

As always, I’m not saying that Trump would make a good president, much less that he’s beyond criticism. But in covering his campaign – and his constituency – is it too much to ask the media to refrain from blaming victims of America’s unmistakably mismanaged economy for their resentments?

(What’s Left of) Our Economy: Real Wages Still Sluggish on Eve of Key Fed Rate Decision

Tags

automotive, Federal Reserve, inflation-adjusted wages, interest rates, manufacturing, manufacturing renaissance, real wages, wages, {What's Left of) Our Economy

The Federal Reserve, which insists that its decisions on interest rates are strictly “data dependent,” today starts a monthly meeting that’s expected to produce an announcement of a small rate hike. If the central bank approves the first increase from the current zero level since December, 2008, it’s hard to imagine that wage data will bear any responsibility. This morning’s figures from the Bureau of Labor Statistics show that it’s as remote a possibility as ever during the current weak recovery.

On a monthly basis, private sector wages adjusted for inflation in November inched up by 0.09 percent. That’s slower than the unrevised 0.19 percent increase in October, and the worst monthly performance since such wages fell by 0.38 percent in June.

The year-on-year numbers, which economists take more seriously, mock the wage inflation claims, too. On a November-to-November basis, constant dollar private sector wages rose by 1.83 percent – much slower than October’s 2.42 percent. These latest annual figures are indeed better than those for the previous Novembers (up 1.74 percent from 2013-14, and 1.06 percent between 2012 and 2013). But at that time, the worries (rightly) centered on wage stagnation, so count me unimpressed.

In addition, the November yearly change continues a dreary recent pattern of real wages slowing down almost as soon as they show any signs of significant pickup. For example, year-on-year inflation-adjusted wage gains hit their 2015 peak so far in January, at 2.43 percent. This rate then decelerated, “sped up” to 2.42 percent in April, and then slowed again before the better October advance.

And since the current recovery officially began, in real wages have risen by only 2.71 percent in toto. That’s a more than six-year stretch.

But maybe the news for manufacturing workers is better, since President Obama and others keep telling us that American industry is enjoying or verging on an historic renaissance? As they say in those rental car commercials, “Not exactly.” In fact, manufacturing again strengthened its reputation as a national wage laggard.

The best manufacturing-related development came for the October data. The sector’s after-inflation monthly wage change was revised up – to zero – from a previously reported dip of 0.09 percent. But according to the November report (whose data is still preliminary, as is the case for the October results), real manufacturing wages flat-lined again sequentially last month. Moreover, these two back-to-back goose eggs were the worst manufacturing real wage results since June’s 0.47 percent monthly decline.

Manufacturing wages do show a pickup on an annual basis. Since last November, they’ve advanced in real terms by 1.61 percent, much faster than the barely detectable 0.28 percent between the previous two Novembers and the 1.16 percent rise from November, 2012-November, 2013. But the latest October annual increase was two percent even, so even this good news needs to be qualified. And since the current recovery began more than six years ago, inflation-adjusted manufacturing wages have actually fallen by 0.19 percent.

Curiously (or not?), this ongoing manufacturing wage weakness has been even more pronounced in the still booming automotive sector. For workers producing motor vehicles and parts, real wages fell sequentially in November for the fourth straight month (by 0.38 percent). In fact, they’re down on net since January, with much of a big August spurt now offset.

Automotive wages after inflation have been rising year-on-year, but since November, 2012-13, the rate has slowed from 2.07 percent to 0.96 percent to this year’s 0.57 percent. All told, adjusting for inflation, automotive wages have decreased by 3.92 percent during this six-plus-year-old recovery.

None of this is to suggest that there’s no inflation anywhere in the U.S. economy, or that the Fed should or shouldn’t hike rates. (Here are my views on that.) But it does suggest that, just as some used to claim that the information technology revolution can be seen everywhere except in the productivity statistics, if you’re seeing inflation in America today, you’re sure not looking at workers’ paychecks.

(What’s Left of) Our Economy: Wage Inflation Claims Just Became Sicker Jokes Than Ever

Tags

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

The Labor Department’s July inflation-adjusted wage figures came out this morning, and for a change, the biggest new development (at least IMO!) isn’t on the month-to-month front, the year-to-year front, or even the trend-since-the-recovery-began front (though all of these numbers once again trash the idea of any major wage inflation taking hold in America).

Instead, the big news looks like the fact that, as of last month, real wages for the private sector have experienced their worst six-month stretch since the March-September, 2011 period. That was nearly four years ago!

Back then, wages after inflation for the private sector dropped by 0.58 percent cumulatively. Since this past January, they’re down by 0.47 percent on the same basis.

Moreover, manufacturing wages tell the same story. On a constant dollar basis, they’re now in their worst six-month stretch since July, 2012 through January, 2013. Back then, real manufacturing wages sank by 0.86 percent on net. Since this past January, they’re off by 0.56 percent.

Not that the bad news, as suggested above, stops there. Real private sector wages actually rose in July by 0.10 percent. That meager advance, however, was the best performance since January. The 1.94 percent year-on-year increase was better than June’s 1.75 percent. But it was the second worst since last December. It’s also true that this July’s annual real wage gains were much better than those of the last few Julys. Yet that’s only because those annual real wage increases were practically nonexistent – and from 2010 to 2011, these wages actually decreased.

And don’t think that the real wage picture brightens when you examine the trends during this economic recovery – an especially important indicator since developments during business cycles (recessions or expansions) give us the most informative data. Since the last recession officially ended – in mid-2009 – inflation-adjusted private sector wages have risen only by 1.74 percent. In other words, that’s the total extent that American workers outside government (where wages are set by politicians’ decisions) have kept ahead of living costs over the last six years.

Interestingly, over the past year or so, the manufacturing real wage path has closely tracked the overall real wage path. As with private sector wages, the inflation-adjusted 0.28 percent monthly gain registered in manufacturing was the best performance since January. And as with private sector wages, manufacturing’s 1.24 percent July year-on-year improvement topped June’s 1.05 percent. As a result, that rise was also a second-worst since December.

Over the longer run, however, there’s been notable divergence between real private sector wages and real manufacturing wages. Whereas the former have risen – slowly – during the current economic recovery, the latter are down by 1.31 percent.

And so it keeps getting ever truer: You can say “wages” and “inflation” in the same affirmative sentence. But you can’t legitimately say that with a straight face.

(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.