Wages in the service sector lead

 - by New Deal democrat

Some of the most interesting relationships I've ever uncovered have been the result of total serendipity.  So it was last week when I examined the relationship between wages in the goods-producing vs. service sectors of the economy.

I found that tepid GDP growth is correlated with lackluster growth in jobs in the goods-producing sector, and that wage stagnation is primarily found in the goods-producing vs. service sector.

Here is something I found totally by chance:  wage growth both peaks and troughs in the service sector almost always before it peaks and troughs in the goods-producting sector.

Here are two graphs going back 50 years of the YoY% change in wage growth.  The goods-producing sector is in blue, sercices in red.. First, here's 1954 to 1982:

And here is 1983 to the present:

In every instance but one in the last 50 years (1980) growth in service wages peaks before growth in goods-producing wages.  In all but two (the early 1990s and 2012), growth in service sector wages bottom before those in goods-producing industries.

In 2014, service sector growth started down, followed by the goods-producing industires.  If we see an increase in the growth of service sector wages, it is a good bet that manufacturing and construction will follow.

Unfortunately, because the goods-producing sector has shrunk to a small share of the overall labor force over time, while service sector wage growth led overall wage growth in the 1960s and 1970s:

since then the service sector has so dominated the labor force that since the 1980s, the two measures have become coincident:

So, an interesting phenomenon, but of limited forecasting value.

A thought for Sunday: when will Happy Days be Here Again?

 - by New Deal democrat

My overarching theme about the economic news for the last 5 years is that it has been "positive, but not good enough." Hardly like striking up "Happy Days are Here Again," as claimed by a few Doomers.

But in the last year monthly job creation has run over 200,000, and the unemployment rate has dropped below 6%.  While the economy is by no longer awful, it's really only doing so-so. Involuntary part-time employment, and the number of truly discouraged workers remain high. And wage increases still stink. 

So, I thought I would lay out what would really cause me to think the economy was downright good?  I came up with two levels.

First:

• U-3 unemployment below 5%
• involuntary part-time employment of persons below where it has been in the past with 6% unemployment (about 4% of the labor force, or about 500,000 fewer persons than now)
• people out of the work for but who want a job now equal to where it has been in the past with 6% unemployment (about 5.75 million people, or about 600,000 fewer persons than now)
• nominal wage growth of 2.5% YoY or more
• real wage growth of 1% YoY or more
• continuing job creation at 200,000 a month or more

If those things happen, the economy is doing pretty good but not great.

Second:

• U-3 unemployment below 4.5%
• Involuntary part-time employment of persons below where it had been in the past with 5% unemployment (about 3% of the labor force, or about 2.1 million fewer people than now)
• the number of people out of the work force but who want a job now equal to the number in the past with 5% unemployment (about 5 million, or about 1.4 million fewer than now)
• nominal wage growth of 3% YoY or more
• real wage growth of 1.5% YoY or more
• continuing job creation of 200,000 a month or more

If those things happen, you can begin to strike up the band.


There's a pretty good chance that we pass the first test this year. It's not clear we will ever pass the second in this economic expansion.

And of course, even if the current economy were going like gangbusters, that still wouldn't solve the long-term problems of income inequality and institutionalized barriers to children being able to overcome the US's increased class stratification.