May jobs up, unemployment down. But wages still won't budge

Yesterday featured the release of the May US jobs report. And it was a very good one.

U.S. employers extended a streak of solid hiring in May, adding 223,000 jobs and helping lower the unemployment rate to an 18-year low of 3.8%....

...the report shows that the nearly 9-year-old economic expansion — the second-longest on record — remains on track. Employers appear to be shrugging off recent concerns about global trade disputes.

The job market is also benefiting a wider range of Americans: The unemployment rate for high school graduates reached 3.9%, a 17-year low. For black Americans, it hit a record low of 5.9%.

And unlike recent months, the drop in the unemployment rate was due to people finding work instead of people dropping out of the work force.

Household survey, May 2018
Labor force +12,000
"Employed" +293,000
"Unemployed" -281,000

The 223,000 increase in non-farm payrolls was also a bump up from the last two months of 155,000 and 159,000, which brought the 3-month average back toward the general trend of 180,000 jobs a month that we had for 2017. And when you dig inside the Bureau of Labor Statistics jobs report, it shows a couple of blue collar industries were especially strong.

Employment in construction continued on an upward trend in May (+25,000) and has risen by 286,000 over the past 12 months. Within the industry, nonresidential specialty trade contractors added 15,000 jobs over the month....

Manufacturing employment continued to expand over the month (+18,000). Durable goods accounted for most of the change, including an increase of 6,000 jobs in machinery. Manufacturing employment has risen by 259,000 over the year, with about three-fourths of the growth in durable goods industries.

That's certainly good to hear, and a nice turnaround from the losses we saw in manufacturing in much of 2016. But the flip side is that wages in manufacturing aren't going up much at all. These figures are before accounting for inflation, by the way.

12 month change in wages, manufacturing May 2017-May 2018
All Manufacturing
Average Hourly Wages +1.5%
Average Weekly Wages +1.7%

Durable Goods Manufacturing
Average Hourly Wages +1.7%
Average Weekly Wages +1.5%

Overall wages in the US also continue to stagnate, even with the low unemployment rate.

In May, average hourly earnings for all employees on private nonfarm payrolls rose by 8 cents to $26.92. Over the year, average hourly earnings have increased by 71 cents, or 2.7 percent. Average hourly earnings of private-sector production and nonsupervisory employees increased by 7 cents to $22.59 in May.

That 2.7% nominal increase in wages over the last 12 months is no different than what we've seen since the start of 2016.



Let's also note that inflation has gone up over those two years, and with gas spiking in May, it is very possible that real wages will have declined over the last 12 months (we will find out for sure when the CPI report comes out in a couple of weeks).

One last item that grabbed my attention from the jobs report was a relatively obscure table that is the only place where jobs in agriculture, hunting, fishing and forestry come in. It's in the household survey, and it shows that the number of people who say they are working in these jobs has declined noticeably over the last 2 years. Almost all of this decline has come among people who describe themselves as "self-employed" in their ag-related field, which indicates many people are either going under and/or being bought out.



The unemployment rate in "Agriculture and related private wage and salary workers" is currently at 5.8%, the highest of any sector in the economy. Could be worth checking on to see if the jobs in those industries keep declining, especially as we continue to hear stories about farm bankruptcies piling up in Wisconsin. But that's about the only sector that's seeing difficulty when it comes to people finding work in our current economy.

So the job market remains in good shape, with jobs growth continuing near (OK, slightly below) the levels we have seen for much of the last 5 years, and the unemployment rate continuing to fall. But wage growth keeps lagging and one of those trends is going to have to break - meaning we are heading toward a bubbly and inflationary boom, or a stalling in the economy that stops the consistent 8-year decline that we have seen in the unemployment rate.