Friday, August 3, 2018

July jobs up, and wages still blah. Same as it ever was

Today was another jobs Friday, and I saw a lot of analysis along these lines.
The U.S. labor market was a mixed picture in July, but overall remains in good shape.

In July, the U.S. economy added 157,000 jobs while the unemployment rate fell to 3.9%.

Expectations were for the economy to add 193,000 jobs with the unemployment rate falling to 3.9%.
But if you go inside the actual jobs report, I don’t think the job growth figure was that bad, because the previous 2 months were revised up by a total of 59,000 jobs, which means we’re 216,000 jobs ahead of where we thought we were.

The unemployment drop was also for “the good reason” – more people finding work and outpacing the 105,000 additional people that entered the work force. The Employment-Population Ratio (people working as % of the population) reached its highest level since the start of 2009, at 60.5%.

Yahoo Finance indicates that a one-time oddity held down job growth, or else it would have been well past 157,000.
Friday’s report showed that the closure of Toys ‘R’ Us had an outsized impact on the employment picture in July as the economy lost 31,800 jobs from the sporting goods, hobby, book, and music stores sub-industry, which in total only employs around 600,000 people.
On the other side, a positive standout was the manufacturing sector, which gained 37,000 jobs in July, and has now added 307,000 in the last year. It continues a very good rebound in that sector that’s been going on for the last year and a half, and one of the biggest positives in our economy since the Trump took office.

By all indications, this sounds like an economy that is booming. So why doesn’t it feel that way for so many of us? Because as we’ve generally seen since the 2000s, wages continue to go nowhere, even with an allegedly tight labor market.
In July, average hourly earnings for all employees on private nonfarm payrolls rose by 7 cents to $27.05. 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 3 cents to $22.65 in July.
That 2.7% is no different than it was 2 1/2 years ago.

What is different is that the rate of inflation has doubled over this time period, to the point that the 2.7% increase falls short of the current change in the Consumer Price Index, meaning that real wages are falling in the US.

The “more jobs, lousy wage growth” theme is especially true in manufacturing, where average hourly wages in manufacturing only went up by a penny in July, and declined in nondurable manufacturing industries such as food, paper and plastics. Average hourly manufacturing wages are only up 1.3% in the last 12 months, while prices have increased at twice that rate in the same time, and the work week is also down by 0.1 hours a week in manufacturing, meaning that weekly wages are up a paltry 1.1% for the last year.

Among other goods-producing sectors, mining and logging had a drop of 13 cents an hour in its average hourly wage in July, and is only up 1.0% percent in the last year. On the other hand, construction wages have risen nicely, up 12 cents an hour in July and up 3.2% in the last 12 months. But with signs of a slowdown in the home buying and building parts of the economy, I wonder when that starts to affect construction’s job and wage growth.

So July’s jobs number is really the same as we’ve been seeing in recent months. Good job numbers, especially in manufacturing. But also wage growth that isn’t even keeping up with inflation, and it continues our two-tier economy where the overall numbers look good, but a lot of people aren’t getting ahead.

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