Friday, January 9, 2015

December Jobs Report: Good on jobs, but red flag on wages

- by New Deal democrat


  • 252,000 jobs added to the economy
  • U3 unemployment rate down -.2% to 5.6%
Wages and participation rates
  • Not in Labor Force, but Want a Job Now: down 111,000 from 6.556 million to 6.445
  • Part time for economic reasons: down 61,000 from  6.850 million to 6790 million
  • Employment/population ratio ages 25-54: up .1% to 77.0% 
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: down $.06 (or -0.3%) from $20.74 to $20.68, up 1.6%YoY
October was revised upward by 18,000 from 243,000 to 261,000. November was also revised upward by 32000 to 358,000. The net revision was 50,000.

Since the economic expansion is well established, in recent months my focus has shifted to wages and the chronic heightened unemployment.  The headline numbers for  December continue to show strong jobs growth, with nearly 3 million jobs added for the year of 2014.  Participation rates are barely budging. 

But the nasty surprise is the deterioration in wages. YoY wages in the last few months have actually started to trend lower.  In real terms they are holding steady, but only due to lower inflation.  Participation rates are barely budging.

Those who want a job now, but weren't even counted in the workforce were 4.3 million at the height of the tech boom, and were at 7.0 million a couple of years ago.  Since Congress cut off extended unemployment benefits at the end of last year, they have actually risen, and are still  700,000 higher than they were in November 2013.

On the other hand, the participation rate in the prime working age group has made up over 40% of its loss from its pre-recession high.

After inflation, real hourly wages for nonsupervisory employees are probably flat from November to December, because lower gas prices will show deflation. The  nominal YoY% change in average hourly earnings is 1.6%.

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were improved, with the notable exception of the average manufacturing workweek.

  • the average manufacturing workweek fell from 41.1 hours to 41.0.  This is one of the 10 components of the LEI, and will be a negative.

  • construction jobs increased by 48,000. YoY construction jobs are up 295,000.  

  • manufacturing jobs  were up 17,000, and are up 193,000 YoY.
  • Professional and business employment (generally higher-paying jobs) rose 52,000 and is averaging a 61,000 monthly gain for the last year.

  • temporary jobs - a leading indicator for jobs overall - increased by 14,700.

  • the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - decreased by 130,000 from 2,505,000 to 2,375,000, compared with last December's 2,255,000 low.

Other important coincident indicators help us paint a more complete picture of the present:

  • Overtime hours rose 0.1 hour to 3.6 hours

  • the index of aggregate hours worked in the economy rose .2 from 102.2 to 102.4.

  • The broad U-6 unemployment rate, that includes discouraged workers decreased from 11.4% to  11.2%.
Other news included:
  • the alternate jobs number contained in the more volatile household survey increased by 111,000 jobs.  This represents a 2,771,000 million increase in jobs YoY vs. 2,952,000 in the establishment survey. 

  • Government jobs increased by 12,000.
  • the overall employment to population ratio for all ages 16 and above remained steady at 59.2%,  and has risen by +0.6% YoY. The labor force participation rate fell .2% to 62.7%, and is down -0.1% YoY  (remember, this includes droves of retiring Boomers).

Overall, while this was a another solid report on jobs and the unemployment rate, continuing to signal ongoing growth, I am getting increasingly concerned that wages are not doing what they should be doing.  With a 5.6% unemployment rate, we should be seeing some significant nominal wage growth.  Instead, in the last few months wages YoY have gone in the opposite direction.  We really need to see this reversed in the next month or two, because it is beginning to look like a real trend and not just monthly noise.