(What’s Left of) Our Economy: Why Investors Shouldn’t Blame U.S. Workers for Inflation

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bonds, budget deficits, Federal Reserve, Financial Crisis, inflation, interest rates, manufacturing, monetary policy, quantitative easing, recession, recovery, stock market, stocks, wage inflation, {What's Left of) Our Economy

Thanks to the U.S. government’s new inflation data, we can cross one often fingered culprit off the list of developments being blamed for the recent turbulence in American, and therefore global, financial markets – wage inflation. For by a crucial indicator, real hourly pay in the United States is not only failing to lead prices upward – it’s been trailing overall inflation recently and indeed has been in recession lately by one commonsense standard.

Of course, market turmoil (like most big developments) springs from several, overlapping reasons. The first is one I discussed last Friday, and which I consider the most important: Investors fear that the Federal Reserve and other world central banks will start tightening monetary policy faster than expected, in order to prevent (more of) the kinds of reckless investments that tend to mushroom when credit is super cheap, and that can often trigger financial crises like the near global meltdown roughly a decade ago. (Happy Anniversary!)

If credit becomes more expensive, then economic growth and corporate profits will struggle to maintain their current rates of increase, and stocks will become less attractive investments, all else equal. In addition, the very increase in interest rates almost certain to result from such central bank “tightening” heightens the appeal of bonds and dims that of equities.

To complicate matters further, another engine of higher rates might be a combination of the great increase in federal budget deficits likely from the new tax cuts proposed by the Trump administration and passed by Congress, and the big-spending budget deal reached by the lawmakers and the President. The consequent budget gap will boost federal borrowing needs (and all else equal, push up the rates Washington will need to pay lenders for all this new debt) at a time when the U.S. central bank has started selling the ginormous amount of government bonds it’s been purchasing and holding since late 2008 (a practice called “quantitative easing) in order to halt the Great Recession and speed up recovery . This version of tightening – which also stems from financial stability concerns – will raise the supply of bonds even further.

The second reason for the turmoil is investor concern that rising inflation will spur central banks to raise rates regardless of the above financial stability concerns – because excessive inflation can produce its own economic disaster. And in fact, the proximate cause of the current bout of market instability seems to be those very inflation fears, and in particular, the possibility of wage inflation.

Higher compensation costs could deal their own blow to stock prices by reducing corporate profits; or by sending upward price pressures rippling throughout the entire economy (as companies tried to pass higher costs on to their customers either elsewhere in the business world or in consumer ranks); or through some combination of the two. (Interestingly, the chances seem pretty low that companies could absorb higher wages through greater efficiency, as productivity improvement has been very slow at best recently.)

So that’s why today’s widely anticipated (to put it mildly) U.S. government inflation data is so important. The inflation figures were somewhat “hotter” than most investors were predicting. But it couldn’t be clearer that wage inflation has nothing to do with these higher prices.

The numbers that most observers – whether investors or not – are looking at are the year-on-year numbers, and they do seem to signal some wage inflation. From January, 2017 to last month, the Labor Department’s headline reading showed a 2.14 percent rise in prices nationwide, and a 1.85 percent increase in “core” prices (which stripped out from the headline food and energy prices because they’re considered so volatile in the short-term that they can generate readings regarded as somewhat misleading).

During that same year, wages adjusted for inflation for the overall private sector were up 0.75 percent – which means they rose faster than overall prices. Moreover, between previous Januarys, real wages actually declined fractionally (by 0.09 percent). So in principle, investors (and other economy watchers) have reasons to be nervous about wage inflation.

But a more recent time frame tells a very different story. For since last May, private sector wages have been down on net. Although the cumulative decline is only 0.19 percent, this means that on a technical basis, real wages are in recession. (I feel justified in using this term because when economists talk about growth, a decline for two consecutive quarters is defined as a recession. So a six-month cumulative downturn seems close enough.) Indeed, more accurately, real wages are still in recession, since this development was apparent last month, too.

And the latest month-to-month figures indicate that real wage pressure is weakening, not strengthening. From December to January alone, they dropped by 0.19 percent, after rising by that amount from November to December.

The picture looks even grimmer when you go back to the start of the current economic recovery – in mid-2009. Since then, real private sector wages have risen by only 4.07 percent. And that’s over more than eight years!

But private sector real wages are practically torrid when they’re compared with inflation-adjusted pay in manufacturing. Such compensation has been in technical recession for two full years, as it’s fallen by 0.09 percent since January, 2016. On a monthly basis, after-inflation manufacturing pay plummeted by 0.46 percent in January, its worst such performance since August’s 0.64 percent tumble. At least the December figure was revised up – though only from a 0.09 percent dip to a 0.09 percent increase.

Over the current economic recovery’s eight-plus years, real manufacturing wages have risen by a mere 0.37 percent – less than a tenth as fast as those of the private sector overall.

Yet although inflation – and especially wage inflation – doesn’t seem to warrant a quicker pace of Federal Reserve interest rate hikes (or even the current, “gradual” pace), a case can still be made for tightening on a financial stability basis. And those massive federal deficits, which will need to be funded by equally massive increases in bond supplies, seem here to stay for many years. So as has been the case for so long, assuming these moves do slow U.S. economic growth, American workers appear certain to pay many of the costs for disastrous policy mistakes they never made.

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

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

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

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

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

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

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

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

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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.  

 

 

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

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blue-collar workers, labor, wage inflation, wages, White-collar workers, workers, {What's Left of) Our Economy

I suppose that if you look at the shortest possible time frame, you can make a respectable case that wages in America are finally showing or soon will show long-awaited signs of life – as so many analysts keep contending. Trouble is, that’s the only way that the case for wage pickup can be made – and even those short-run data are problematic.

As always, the monthly jobs report released by the Labor Department last Friday also provided the latest wage (December) figures for the American workforce before adjusting for inflation. (The inflation-adjusted data is scheduled to come out on the 20^th.) Although the figure will be revised, Labor reported that current dollar wages for the entire private sector rose 2.52 percent year-on-year. As the graph below shows, that was indeed the best such improvement since these data began to be tracked (which is only since 2009).

Yet as several observers have pointed out, this December-to-December comparison looks to be unsustainably juiced by a terrible wage performance in December, 2014 – which made the December, 2015 rise look that much bigger. For what it’s worth, few expect these easy comparisons to continue.

It’s also important to remember that sizable minimum wage increases kicked in last year in 23 states and the District of Columbia. So a fair portion of the wage advance had nothing to do with the natural strength of U.S. labor markets, and everything to with politicians’ decisions.

Longer-term data is available for workers whose jobs are described as “non-supervisory” and “production.” Think of this as the blue-collar workforce – i.e., those workers who depend on wages rather than salaries, bonuses, and other forms of non-benefits pay. (Often their benefits aren’t so great, either, but that’s another story.) And here’s where the wage recovery story breaks down.

Here’s how blue-collar wages have changed year-on-year before inflation since 2009-10 – the maximum time-frame available for the entire private sector.

 

Obviously, these workers have enjoyed much less progress than their white-collar counterparts, even though their 2.41 percent 2014-15 increase was also their best since 2009-10.

Go back further, though, with blue-collar wages, and you see how feebly these non-supervisory wages have been growing for literally decades. The graph below shows the annual percentage increases since 1980. And yes, you’re permitted to react with a “Yuck”!

In other words, there’s been no acceleration of wage inflation since the late-1980s.

At the same time, as I’ve written repeatedly, the most valid way to judge economic trends over time is not according to completely arbitrary, economically meaningless units like calendar years, but according to periods of economic expansion and contraction. So do those numbers provide any support for the wage inflation thesis? Anything but. Here’s how they look for non-supervisory workers for all the economic recoveries since Ronald Reagan became president.

“Reagan recovery,” Dec. 1982-June 1990  (c. 7.5 years) +27.18% 

“Clinton recovery,” Apr. 1991-Feb. 2001 (c. 10 years)  +37.38% 

“George W. Bush recovery,” Dec. 2001 to Nov. 2007 (c. 6 years) +19.59%

“Obama recovery,” June 2009-present (6.5 yeaes) +14.27% 

They demonstrate that although the current expansion isn’t yet especially long by recent standards, its blue-collar wage increases have been by far the weakest.  In other words, if there’s anything that’s increasingly inflating about the American wage scene, it’s claims or accelerating wage inflation.

(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 Jobs Inched Up but Other Measures Swooned in June

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Bureau of Labor Statistics, Employment, inflation-adjusted wages, Jobs, manufacturing, non-farm payrolls, real wages, recovery, wage inflation, wages, {What's Left of) Our Economy

June’s 4,000 monthly net employment increase for manufacturing wasn’t enough to prevent the sector from entering its worst seven-month job-creation stretch since April-November, 2013. On an annual basis, moreover, manufacturing’s June 161,000 employment improvement was lower than May’s 180,000 and its poorest year-on-year performance since the previous May.

Largely as a result, manufacturing’s share of total nonfarm employment hit a new record low last month – 8.70 percent. And manufacturing wages fell in June month-to-month (by 0.20 percent) for the first time since December – a worse performance than even the flat line turned in by the overall private sector.

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

>June’s preliminary jobs report shows that manufacturing employment rose by 4,000 on net during the month – lower than May’s 7,000 improvement, which revisions left unchanged. April’s 1,000 net jobs gain for the sector remained unchanged, too.

>The decent June manufacturing employment news ended there, though. Last month’s gains were too small to prevent the sector from entering its worst seven-month net job-creation stretch (56,000) since April-November, 2013’s 66,000.

>In addition, the yearly manufacturing job advance revealed in the June figures (161,000) not only trailed May’s 180,000, but represented the worst such increase since May, 2013-2014’s 147,000. the June year-on-year rise was also lower than the 172,000 net new manufacturing jobs created from June, 2013-June, 2014.

>Largely as a result, manufacturing’s share of total non-farm employment dropped to a new record low in June – 8.70 percent. At the sector’s recessionary employment bottom (February and March, 2010), manufacturing jobs accounted for a much higher percentage of the official U.S. jobs universe – 10.69 percent and 10.67 percent, respectively.

>Since manufacturing hit that last 2010 employment bottom, the sector has regained 885,000 (38.60 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 since increased net employment by 12.759 million.

>In fact, whereas total private sector employment is now 3.41 percent higher than at the recession’s beginning, manufacturing employment is still 10.24 percent lower.

>Far worse than manufacturing’s June job creation performance was its wage performance last month. The sector’s current dollar wages fell by 0.20 percent on month – the first such drop since last December (0.36 percent). In June, manufacturing wages inched up only by (a downwardly revised) 0.08 percent. Both changes lagged even the private sector’s disappointing on-month wage flat line in June and its 0.24 percent improvement in May.

>Just as important, June’s year-on-year current dollar manufacturing wage increase was only 1.05 percent – the slowest advance since January, 2012-2013’s 0.67 percent. The latest annual increase also trailed the previous June’s 1.85 percent and June 2012-2013’s 1.89 percent.

>By contrast, overall private sector wages increased by two percent in June year-on-year. 

>Since the current economic recovery began, pre-inflation manufacturing wages are up less (8.95 percent) than private sector wages (12.59 percent).

>Manufacturing’s wage performance has been even worse after adjusting for inflation. The latest Labor Department figures report on May, and will be updated later this month. But they showed that in real terms, manufacturing wages flat-lined from January through April (with new revisions wiping out that latter month’s penny increase), and then sank by 0.38 percent in May.

>Real total private sector wages dropped on a monthly basis in May, too, but by half that rate – 0.19 percent. From January through May, they are down by that same amount.

>Year-on-year, inflation-adjusted manufacturing wages rose in May by only 1.63 percent – less than April’s 1.82 percent, which itself was downwardly revised. May real overall private sector wages were up considerably more – by 2.23 percent, though that figure has been revised down as well.

>Moreover, as of these preliminary April data, inflation-adjusted manufacturing wages are down by 1.12 percent since the recovery officially began in mid-2009. Real wages for the entire private sector are up 2.03 percent during this period.

(What’s Left of) Our Economy: Why Wage Inflation Claims Still “Can’t be Serious”

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automotive, inflation, Jobs, labor conditions, manufacturing, real wages, recession, recovery, slack, wage inflation, wages, {What's Left of) Our Economy

Well, at least it was fitting. On the same day (yesterday) that a second House vote gave a big boost to President Obama’s growth-, jobs-, and wages-killing trade agenda, the Labor Department reported that in May, American wages after inflation fell sequentially for the second month this year. Moreover, they fared even worse in the trade-heavy manufacturing sector.

As I’ve previously noted, Labor’s real wage data attracts much less attention that its current-dollar wage data – no doubt because the latter comes out along with its breathlessly followed monthly jobs reports. But the inflation-adjusted figures are of course much more important, since they’re the best measure of whether American workers are keeping up with living costs. And let’s not forget that they keep putting the kibosh on the claim that U.S. labor costs are finally signaling job market healing.

The May monthly drop – 0.09 percent – wasn’t big, but it was the second such decrease of the calendar year. It also the second-worst figure (+2.23 percent) on a year-on-year basis – something economy watchers look at more closely – of 2015. Wage-inflation worry warts can observe that this May yearly improvement was the best rise since 2009. But it still leaves real wages for the entire private sector work force up a mere 2.03 percent since the current economic recovery technically began in mid-2009.  (These broadest real wage figures don’t cover government workers, whose pay of course is set by political decisions, not by free market forces or any kind of economic fundamentals.)

As bad as overall private sector workers have fared wage-wise, they keep leaving their manufacturing counterparts in the dust. Real monthly wages in that sector dropped 0.38 percent from April to May, the biggest percentage decline since last April. Manufacturing pay stagnated so badly in 2014 that the May year-on-year increase of 1.73 percent was the best such rise of 2015. This improvement also dwarfs that of previous Mays. But despite this progress, manufacturing real wages are now down 1.03 percent during the recovery. Does that, by the way, sound to you like a sector enjoying a renaissance?

The new real wage figures also continue casting a gloomy shadow on the American automotive boom.  This sector’s recovery rebound has consistently helped to lead manufacturing output’s strong comeback from a terrifying drop of about 20 percent in real terms during the recession. But the wage data is screaming that this revival has taken place largely on the backs of the automotive workers.

We’ll need to wait a month for the May figures that break out parts trends from vehicles trends, but the entire sector saw May real wages sink on a monthly basis by 0.85 percent – as with manufacturing in general, the biggest such fall-off since last April. But as was not the case with manufacturing generally, the 1.95 percent May-to-May increase was the lowest of 2015.

The longer term trends yield a classic good news-bad news story. The good news is that these May numbers amount to by far automotive’s best yearly performance since these trends started to be tracked in 2006. In fact, they’re only the second May-to-May increase. (Last May’s was the first.) The bad news, however, is that inflation-adjusted automotive wages are down 4.38 percent since the recovery’s technical mid-2009 onset. That’s a decline more than four times greater than that suffered by manufacturing workers generally.

It’s true that unionized automotive workers, especially for the Detroit assemblers, have also been receiving bonuses and profit-sharing proceeds, and that their wages and especially overall compensation on average vastly exceed that of their non-unionized fellows. But it’s also true that the Big Three were able to create two-tier wage structures after the recession led to government rescues of GM and Fiat-Chrysler, and that they’re going to argue for even greater “flexibility” in the new contract talks that begin next month.

Given Detroit’s ongoing option of sending even more production – and jobs – to Mexico and elsewhere abroad thanks to current trade agreements and policies, it’s difficult to expect an reversal of the automotive wage decline anytime soon, and manufacturing workers generally will remain under similar pressures. As for pay in the broader economy, it still looks clear that wage inflation claims should be greeted with tennis great John McEnroe’s classic officiating complaint: “You can’t be serious!”

(What’s Left of) Our Economy: December Shows Continuing Manufacturing Job Gains but Returning Wage Woes

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Employment, Jobs, manufacturing, manufacturing renaissance, wage inflation, wages, {What's Left of) Our Economy

Manufacturing reenforced its recent good job gains in December, adding 17,000 net new positions on top of upwardly revised October and November improvements. The sector’s employment, moreover, now stands at its highest level since February, 2009. But manufacturing’s share of total U.S. employment remained at its historic low, and current dollar wages fell in December month-to-month for the third time this year. Moreover, inflation-adjusted gains for November (the latest available figures) were much too small to affect the sector’s lagging performance.

Here’s my detailed analysis of the manufacturing employment picture based on this morning’s December monthly employment report from the Bureau of Labor Statistics, plus the Bureau’s interactive historical database (which you can access here):

>Today’s December manufacturing jobs figures provided further evidence of the sector’s recovery from a summer employment slump. In addition, to industry gaining 17,000 jobs last month on a monthly basis, November’s very strong 28,000 gain was revised up to 29,000, and October’s 20,000 net new job figure was revised up to 24,000.

>As a result, manufacturing’s December employment level of 12.239 million was its highest since February, 2009, when it totaled 12.381 million.

>Manufacturing’s year-on-year job-creation was impressive in December as well, reaching a record net gain of 186,000 for 2014.  This total was also much higher than the 88,000 gain from December, 2012 to December, 2013.

>Nonetheless, because total nonfarm employment continued its major improvement, too, manufacturing’s share of that economy-wide figure has remained at a record low 8.72 percent since September. At its February, 2010 absolute employment bottom, manufacturing represented 10.69 percent of total nonfarm jobs.

>Manufacturing has now regained 786,000 of the 2.293 million jobs it had lost on net from the recession’s onset in December, 2007 to that nadir (34.28 percent). Manufacturing’s current employment level of 12.239 million, therefore, is still 1.507 million below its last pre-recession monthly figure of 13.746 million.

>By contrast, since its own February, 2010 absolute recessionary low point, total nonfarm employment is up by 10.692 million. That’s 1.997 million more net new jobs than the 8.695 million lost from the recession’s onset to the employment trough.

>Manufacturing’s share of the nation’s total job gain since February, 2010: 7.35 percent.

>Manufacturing wages after inflation rose in November (the latest figures available) by 0.38 percent on a monthly basis. That was better than the 0.28 October figure. November’s real year-on-year manufacturing wage gains also topped October’s – rising by 0.28 percent versus 0.10 percent.

>But measured year-on-year, real manufacturing wages rose much more slowly in both November and October than they did during the previous year for both months (0.28 percent versus 1.16 percent, and 0.10 percent versus 1.45 percent, respectively).

>Real manufacturing wages as of November are down 1.77 percent since the current recovery technically began in June, 2009.  Since then, overall real private sector wages are up 0.78 percent.

>Nominal manufacturing wages fell on a monthly basis in December for the third time this year.

(What’s Left of) Our Economy: Hopium Dominates Mainstream Media Coverage of Wage Trends

Tags

Jobs, Mainstream Media, wage inflation, wages, {What's Left of) Our Economy

I used to be absolutely certain that international trade was the area of economics that journalists covered worst. Recently, it’s become increasingly clear that reporting on American wage trends, and specifically the issue of whether they’re finally starting to rise at acceptable rates, is giving trade reporting a run for its money.

The latest and possibly most egregious examples come from reports on the November jobs figures released yesterday by the Labor Department. According to The New York Times‘ Neil Irwin, “[W]hat was warming the hearts of many jaded economy-watchers on Twitter Friday morning were the numbers on wages.” In the words of the Washington Post’s Chico Harlan, “the latest numbers came with nascent signs of wage growth, the result of qualified individuals reentering the workforce, putting pressure on companies to retain their best employees or bid for new applicants.”

Financial Times correspondents told us, “Wages rose by 0.4 per cent over the previous month — the equivalent of 5 per cent at an annualised pace. That was much faster than the pace seen so far in the recovery, and is enough to drive inflation higher if sustained.” Bloomberg’s story featured the headline, “Broadest Job Gains Since 1998 Mean Faster Wage Growth is Coming.”

It’s like no one knows how to count, or bothers to look at the historical tables posted on the Bureau of Labor Statistics website. For this data shows unmistakably that there is absolutely zero evidence of any pick up in wages. More specifically, the type of gain registered in November is anything but unprecedented during the current economic recovery, and has added up to bupkus over the longer haul.

Let’s assume that the November numbers, which are still preliminary, hold up – or even improve. First, the monthly increase was 0.37 percent (before adjusting for inflation), which is only 0.40 if you round up. Much more important, this gain came after two months of data that were bad even by recent wage standards – a 0.12 percent advance in October (also still preliminary), and no change at all in September. In fact, here are all the monthly changes so far for 2014:

January +0.21 percent

February +0.21 percent

March +0.21 percent

April +0.04 percent

May +0.21 percent

June +0.29 percent

July +0.04 percent

August +0.33 percent

September 0 percent

October +0.12 percent

November +0.37 percent

Hats off to you if you can describe this as a wage pickup with a straight face.

But what about Harlan’s observation that November’s wage “spike” was “the sharpest month-to-month change in more than a year”? The only reasonable answer is “big deal.” Anyone familiar with the data knows that such single-month improvements have had no predictive value whatever.

For example, Wages rose even faster in June, 2013 – by 0.38 percent. Here’s how they fared over the next six months: -0.04 percent, +0.25 percent, +0.12 percent, 0.12 percent, 0.25 percent, and 0.08 percent.

Wages also rose by 0.38 percent in November, 2012. Over the next six months, they increased by 0.30 percent, 0.17 percent , 0.17 percent, 0.08 percent, 0.21 percent, and 0.38 percent.

In October, 2011, wage rose even faster – by 0.43 percent. Over the next six months, the rate of change was -0.09 percent, 0.09 percent, 0.13 percent, 0.22 percent, 0.30 percent, and 0.13 percent.

So there’s at least a heavy burden of proof on those who would attach any significance to November’s wage increase.

But these claims look even more fanciful if you examine the year-on-year changes. As widely noted, November’s 2.11 percent increase was still unimpressive historically. (It, too, will be revised.) But in fact, the November gain was unimpressive even by 2014’s measly standards. You’ll see what I mean by looking over this year’s 2013-2014 changes by month so far:

January 1.98 percent

February 2.10 percent

March 2.11 percent

April 1.97 percent

May 2.05 percent

June 1.96 percent

July 2.04 percent

August 2.12 percent

September 2.00 percent

October 1.99 percent

November 2.11 percent

These figures show that the November year-on-year change was only the second highest of 2014, and that it’s been equaled once before. Where’s the momentum?

But perhaps the most convincing rejoinder to the wage pickup claims comes from comparing 2014’s year-on-year changes in wages to 2013’s. Here they are with the 2013 figures in parentheses:

January 1.98 percent (2.11 percent)

February 2.10 percent (2.10 percent)

March 2.11 percent (1.88 percent)

April 1.97 percent (1.97 percent)

May 2.05 percent (2.05 percent)

June 1.96 percent (2.17 percent)

July 2.04 percent (1.91 percent)

August 2.12 percent (2.21 percent)

September 2.00 percent (2.04 percent)

October 1.99 percent (2.25 percent)

November 2.11 percent (2.16 percent)

The message couldn’t be clearer: Wages have been rising more slowly on an annual basis this year than they were last year, not faster. The year-on-year 2013 increases have been greater than their 2014 counterparts for the last four months, and for six of eleven months’ worth of data so far. In three months, the rates of change were identical.

You’ve heard the expression making mountains out of molehills? These reporters have made mountains out of absolutely nothing – at best. One conspicuous exception: The Wall Street Journal’s Ben Leubsdorf did note that “Similar monthly jumps in earnings in recent years have quickly faded.” What are the odds that this instance of sensibility has more predictive value for the Mainstream Media than the November wage gains seem likely to have for American workers?