Making News: Back on National Radio…& More!

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Airbus, Biden, Biden border crisis, Boeing, Central America, China, Dominic Gates, G7 Summit, Gordon Chang, Immigration, IndustryToday.com, Iran nuclear deal, JCPOA, Jobs, Making News, Market Wrap, migrants, Moe Ansari, Seattle Times, The Epoch Times, The Hill, Trade, trade policy, wage inflation, wages

Time to catch up with the updates on recent media appearances – in reverse chronological order!

It was great to return this past Wednesday to Moe Ansari’s nationally syndicated “Market Wrap” radio program. Click here for the podcast of an exceptionally wide-ranging segment covering topics from the recent summit meeting of the world’s leading economies to the future of the Iran nuclear deal.

On June 16, leading China policy analyst Gordon Chang quoted me in an op-ed for The Epoch Times explaining how some features of President Biden’s economic proposals might backfire and promote employment in China, not the United States. Here’s the link.

On June 15, the Seattle Times‘ Dominic Gates featured my views in his coverage of the recent settlement of a long-running trade dispute between Europe’s Airbus and America’s Boeing. Incidentally, if there’s a U.S. journalist more knowledgeable than Dominic about the aerospace industry, I’ve never met him or her. So it was especially flattering that he sought out my perspective. Click here to read. In addition, the article was widely distributed throughout the country via the Tribune News Service syndicate.

On June 10, Chang again highlighted some of my opinions – this time in an op-ed for The Hill some of my thoughts on using U.S. trade policy more effectively to help foster prosperity in Central America and thereby stem the flow of migrants, and why previous such efforts have failed. Here’s the link.

Finally, on June 2, IndustryToday.com re-posted (with permission!) my RealityChek essay arguing that, despite numerous alarm bells, wage inflation overall in the United States seems pretty unexceptional. Click here to read.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: The Latest Data Remain Full of Normalization Puzzles

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Biden, CCP Virus, China, construction, coronavirus, COVID 19, Donald Trump, exports, goods trade, imports, inflation, inflation adjusted wages, labor shortages, leisure and hospitality, lockdowns, manufacturing, metals, non-oil goods trade deficit, non-supervisory workers, private sector, real wages, reopening, retail, services trade, shutdowns, tariffs, Trade, Trade Deficits, transportation, wage inflation, wages, Wuhan virus, {What's Left of) Our Economy

While I was away for a few days last week, two major U.S. government reports came out both giving off conflicting signals on on whether the economy has started to return to normal in critical ways as the CCP Virus subsides and reopening, along with consequent changes in consumer behavior, proceed.

The monthly trade figures (for April) showed a sequential decline, following a record surge, in America’s chronically huge gap between exports and much larger amounts of imports. Moreover the monthly drop took place as economic growth sped along at unusual rates after being shut down by government mandates and consumer caution. So maybe they’re an early sign that a return to immediate pre-virus conditions has begun?

Or is their most important message that these deficits, and especially the import levels, are still hovering near all-time highs in (the most widely followed) pre-inflation terms even though the economy as of the latest (first quarter) numbers is still a bit smaller in (the most widely followed) inflation-adjusted terms than during the last full pre-pandemic quarter (the fourth quarter of 2019)?

Indeed, the deficits are gargantuan even though President Biden has left former President Trump’s substantial tariffs on metals and goods from China practically untouched. 

The monthly inflation numbers (for May) are similarly confusing. They revealed that consumer prices (just one inflation measure published by Washington, but an important one) rose by 4.93 percent in seasonally adjusted terms. That was their fastest annual pace since September, 2008’s 4.95 percent. Surely, as widely claimed (including by the Federal Reserve, which wields so much influence over the economy, this upswing stems from a combination of bottlenecks resulting from (1) the sudden, widespread reopening; (2) the unusually low overall inflation numbers generated a year ago, when the economy was near the depths of its viruts- and shutdown-induced slump; and (3) the immense dose of stimulus injected into the economy by both elected politicians and the unelected Fed.

At the same time, the Fed has told us that its stimulus isn’t ending anytime soon, and although the Biden administration and Congressional Democrats are displaying some cold feet about approving more such levels of economic fuel (e.g., in the form of outlays on infrastructure, and a wide variety of income supports and enhanced unemployment benefits), it’s difficult to imagine that most or even much of this spending will actually be withdrawn even once a post-virus recovery is an indisputable reality.

But the biggest surprise of all: Despite the economy-wide inflation pressures, and by-now-routine claims that employers are dealing with nearly crippling labor shortages, wages overall adjusted for inflation keep going down.

Compounding the confusion over whatever conclusions can legitimately be drawn from these two reports: They cover two different months.

But let’s begin with the most important details from the April trade report. The ambiguity embodied in the data begins with the total deficit figure. The record March result was revised up from $74.45 billion to $75.03 billion but April’s $68.90 shortfall for goods and services combined, though the second worst monthly figure ever, was 8.17 percent smaller. That’s the biggest sequential drop since February, 2020 (8.39 percent), when China’s export-heavy economy was still largely closed because of the virus.

The same holds for the goods trade gap. The record March figure was revised up, too, from $91.56 billion to $92.86 billion. But April’s $86.68 billion result represented a 6.65 percent monthly decline, and this falloff was the biggest since the 8.39 percent plunge of January, 2019 – when American businesses were still adjusting both to Trump’s tariffs and anticipated tariffs.

Also still fueling the high U.S. deficits – a worsening of services trade balances. Here, U.S. trade has long been in surplus, but the surpluses keep shrinking because service sectors like travel are still suffering from the pandemic’s arrival and the consequent decimation of travel and othe transportation in particular. In fact, the April figure of $17.78 billion was the lowest since September, 2012’s $18.62 billion.

One key set of trade flows does, however, provide some evidence of Trump tariff effectiveness – U.S. non-oil goods trade, which encompasses those exports and imports whose magnitudes are most heavily influenced by trade policy (because, as known by RealityChek regulars, trade in oil is almost never the subject of any trade policy decisions and services trade liberalization remains at very early stages). In April, the monthly shortfall retreated 4.16 percent from its March record of $90.12 billion to $86.37 billion – which is only the fourth highest such total ever.

The import figures I focused on last month exhibit the same overall patterns: April saw big drops from record levels but the absolute numbers remain distressingly high. March’s initially reported record $274.48 billion in total imports was revised up considerably – to $277.69 billion. April’s total of $273.89 billion represented a 1.37 percent drop, but nonetheless was the second worst such figure on record.

March’s record monthly goods import figure was upgraded, too – from $234.44 billion to $236.52 billion. April’s total of $231.97 billion was a 1.92 percent drop but these purchases also still represented the second highest of alll time.

As for non-oil goods imports, the $215.33 billion April total was 1.98 percent down from an upwardly revised record $219.68 billion, and also the second biggest ever. Biggest drop since last April’s 10.91

Whether normalization is returning in manufacturing is more difficult to tell. Imports in March hit a record $207.59 billion, and did drop by 4.59 percent sequentially to $198.06 billion in April. That decrease, however, was a typical monthly move for manufacturing imports, and the April figure was still the third highest ever.

Incidentally, the April manufacturing deficit of $103.60 billion was 4.64 percent lower than March’s $108.66 billion. The March total was the second highest on record, but April’s figure was only the seventh all-time worst. The record, $110.20 billion, came last October, and it’s notable that the gap has narrowed on net despite the resilience shown during the pandemic period by manufacturing output.

More evidence of the Trump tariffs’ impact comes from the data on goods trade with China – whose products have attracted nearly all of these levies, and that cover hundreds of billions of dollars worth of products. The April figure of $37.59 billion was 6.56 percent lower than its March predecessor – a thoroughly unexceptional sequential decline and monthly level by historical standards. But the monthly dropoff was consideraby greater than the aforementioned 1.98 percent decrease for non-oil goods – the closest global proxy.

As a result of all these inconclusive developments, I’ll be awaiting the May trade report with even more interest than usual.

But despite all the uncertainties I mentioned at the start of this post, those May inflation figures have made me more confident than before in my previous contention that current price surges are anomalies by the extremely low inflation generated by the CCP Virus-battered economy of a year ago, and by the sudden reopening of so much of the economy following the long shutdowns and lockdowns. Even clearer, as I see it: Claims of significant, troubling wage inflation are especially weak.

After all, that 4.93 percent year-on-year May price increase followed a previous May-to-May rise that was just 0.22 percent. That was the feeblest such rise since September, 2015’s 0.13 percent. In addition, May’s month-to-month 0.64 price advance was smaller than April’s 0.77 percent. Two months do not a trend make, but these numbers certainly don’t point to raging inflation fires.

Nor do the wage data. Otherwise after-inflation total private sector wages wouldn’t be down more on-month in May (-0.18 percent) than in April (-0.09 percent). And the same couldn’t be said of constant dollar wages for non-supervisory workers (-0.20 percent in May versus flat in April).

Getting more granular, the price-adjusted wage trends are as bad or worse in construction; trade, transportation and utilities overall; retail trade; and education and health services.

The two big exceptions: the leisure and hospitality workforces that have been so decimated by the virus (and especially the non-supervisory group) and the transportation and warehousing sub-sector of the transportation and utilities industry category that contains a trucking sector unusually strained by the rapid reopening. In both cases, however, (and especially the leisure and hospitality industry), inflation-adjusted wages in absolute terms are well below the national private sector average. If anything, therefore, it seems like some wage inflation for these workers is long overdue.

(What’s Left of) Our Economy: Wage Inflation? Seriously?

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CCP Virus, construction, coronavirus, COVID 19, housing, inflation, inflation-adjusted wages, labor shortages, leisure and hospitality, private sector, real wages, recession, recovery, wage inflation, wages, Wuhan virus, {What's Left of) Our Economy

Reports keep abounding that U.S. businesses can’t find enough workers to match their needs amid an ongoing rapid reopening of the economy from its lockdowns-induced slump, and that companies are therefore being forced to attract employees with ever higher – and even alarmingly higher – pay offers.

All of that makes perfect sense except for one critical detail: The official U.S. wage figures show precious few signs of soaring wages whatever. In fact, when you adjust for the inflation that has been recorded in Washington’s statistics, you see that workers’ hourly pay generally keeps falling behind, not racing ahead, of rising prices in the economy.

First let’s look at the pre-inflation figures for the entire economy (except for government, where pay levels mainly reflect politicians’ choices, not economic fundamentals).

When it comes to the entire private sector, hourly earnings in April (the latest figures available, which are still preliminary) grew by 0.33 percent year-on-year. That result, though, is somewhat misleading, since the previous April’s level was artificially high. That month, remember, was the depth of the CCP Virus-induced recession, and companies were largely laying off their least experienced (and cheapest) staffers. So the wage number for retained workers rose (and strongly) simply because their pay levels remained relatively lofty, and they accounted for a much bigger percentage of employment. Therefore, perhaps that misleadingly high April, 2020 figure was the main reason that the 2020-2021 improvement is misleadingly low?

Unfortunately, the data shoot down that hypothesis, too. For example, between “normal” April, 2018 and 2019, economy-wide pre-inflation wages jumped by 3.30 percent. That’s ten times the 2020-2021 increase. And in fact, the April, 2019 to 2020 pay hike was by far the smallest since 2006 (when this particular data series began).

But maybe the biggest wage inflation only began this calendar year – when overall inflationary pressures have arguably become visible?  Between January and April, current dollar hourly wages for the entire U.S. private sector did climb by 0.84 percent, and that advance was more than twice as fast as the April year-on-year change. Moreover, this 2021 wage growth was faster than that for “normal” January-April, 2019 (0.76 percent). Indeed, it was the fastest since 2008, another recessionary year when layoffs heavily concentrated among the least experienced, lowest-paid employees rendered the 0.90 percent result artificially high.

But aside from 2008, the January-April increase wasn’t that much higher than that seen in many recent years. For example, the January-April result for “normal” 2019 was 0.76 percent. For 2018, it was 0.71 percent. Just as important – does anyone think that those years, or any time lately, has been a golden age of wage increases?

There’s another possibility to consider: that strong wage inflation has taken place only among the production and other non-management workers, who both tend to be the lowest-paid and who in principle therefore are likeliest to be kept out of the job market by unusually generous unemployment benefits.

Average hourly earnings before inflation for this group have actually risen much more strongly year-on-year in April than for the overall workforce – by 1.15 percent versus 0.33 percent. And this 2020-2021 result, as with wages for the entire workforce, does seem to have been artificially depressed by the equally artificially high (7.84 percent!) figure for 2019-2020.

But historically, the 2020-21 wage increase not only looks anything but exceptional. It’s positively pitiful – by far the weakest April-April rise on record. Just to compare, from April to April in “normal” 2019 and 2018, current dollar wages for these “blue collar” workers were up 3.46 percent and 2.83 percent, respectively. .

Are the trends much different for January-April periods – which in principle should reveal whether wage inflation has waited till this calendar year to take off? For 2020 so far, pre-inflation blue collar hourly pay has improved by 1.23 percent – more than the 0.84 percent increase for all private sector workers.

That’s much slower than the comparable 5.36 percent jump last year, but we agree that last year was weird. The 2021 results are faster than those of normal 2019 (0.91 percent), but the gap doesn’t seem gargantuan to me. At the same time, current dollar January-April pay increases of one percent or greater for blue collar workers have been experienced five times since 1998, and before then, you need to go back to the late-1980s for a period when they were routine.

So describing the January-April, 2021 results as wage inflation-y could be justified. But that’s a far cry from reasonably concluding that this inflation will have much in the way of legs, since the economy, as widely noted, has never seen this kind of sudden stop-start transition in peacetime.

There’s another set of numbers, though, that needs to be examined to put the wage inflation issue in full perspective – recent wage changes after taking into account inflation across the entire economy. And in these real terms, hourly pay has actually been going down lately.

That’s true for all private sector workers between last April and this past April (down 3.66 percent).

It’s true for these workers between January and April of this year (down 0.88 percent).

It’s true for private sector blue collar workers between last April and this past April (down 3.37 percent).

And it’s true for these workers between January and April of this year (-0.71 percent).

Moreover, the “2020 effect” caused by that year’s artificially high baseline doesn’t seem to account fully for this wage deterioration. It’s definitely been apparent for all private workers (for whom average real wages soared by 7.81 percent between 2019 and 2020), and for private sector blue collar workers (whose inflation-adjusted average hourly pay surged by 7.68 percent).

In addition, since 2006, (when real wages for the whole private sector workforce began to be tracked), these wages have fallen on an April-April basis five other times. But they’ve never fallen by remotely as much as in 2021. And this year, employers are supposed to be desperate for workers. Much the same holds for private sector blue collar workers during this period.

Looking at the January-April periods, the 2021 decrease of 0.88 percent for all private sector workers is the second biggest since 2006 (trailing only 2011’s 0.97 percent). Further, this four-month stretch has only seen one other instance of constant dollar wage decrease (2019’s 0.37 percent). And the 2021 result is all the more strange given the strangely strong and sudden nature of the recovery.

When it comes to their blue collar counterparts, 2021’s 0.71 percent drop in after-inflation wages between January and April is also the second biggest since 2006 (trailing only the 1.24 percent fall-off suffered, again, in 2011). Pay declines during this period for these workers has been more frequent than for the private sector overall. (They’ve occurred five times all told before 2021.) Again, however, 2021’s has been puzzlingly steep given the economy’s unusually fast recovery this year and all the labor shortage claims that have resulted.

More convincing signs of out-of-the-ordinary wage inflation can be seen in sectors like construction and leisure and hospitality, especially during the first four months of this year. In the former, which has enjoyed strength in residential housing throughout the pandemic period, pre-inflation wages have increased by 1.24 percent. That’s the most since 2006 (again, the earliest data available) – though not outlandishly so. But after accounting for inflation, real construction wages have dropped by 0.49 percent between January and April of this year.

For blue collar construction workers, pre-inflation wages have improved by 1.75 percent during the first four months of 2021 – another post-2006 high. But even though their real wages have dipped during this period by only 0.17 percent, that’s still a dip.

The leisure and hospitality industries are of course coming out of a disastrous pandemic period, and with Americans now flocking to restaurants and bars and resuming travel, it’s not surprising that January-April current dollar hourly pay has risen by 3.71 percent – far and away a post-2006 record. The post-inflation number is up nicely, too (1.98 percent), and also a performance that’s smashed previous records. So this sector so far is telling a stronger wage inflation story.

Non-supervisory blue collar leisure and hospitality workers have fared even better, with pre-inflation wages zooming up by 5.87 percent between January and April of this year, and real hourly pay better by 3.98 percent.

Will these healthy pay hikes continue? That’s a big question for these parts of the economy. But even though wage figures don’t capture the entire compensation picture (in particular, they leave out non-wage benefits and all the signing bonuses employers are reportedly offering to lure workers off the sidelines), with wage and salary income representing more than 80 percent of total employee compensation throughout the economy (including in the public sector), they capture lots of the picture. And the overall message is that, like a famous economist once said about computers being everywhere but in the productivity statistics, wage inflation worth worrying about, and related worker shortage claims, to date are everywhere but in the wage statistics.

(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?

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.  

 

 

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

Tags

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

Tags

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”

Tags

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!”