Tuesday, March 14, 2017

Where are we in the labor market cycle?

 - by New Deal democrat

In keeping with my big focus on jobs and wages for average Americans, let's take a look at the progression of the labor market over the last few cycles.  In most of the following graphs, the underemployment rate, U6, which was first reported in 1994, is in red, inverted, right scale.

First, while a common mistake is to think that jobs lead consumption, in fact the reverse is true.  Real retail sales (blue, left scale) lead jobs:

Reai retail sales also lead underemployment:

Usually in the past, jobs led the underemployment rate, but in the last few recoveries from recessions, the underemployment rate troughed coincidently or slightly ahead of employment:

As I have shown many times over the last few years, nominal wage growth typically has not begun to accelerate until the underemployment rate falls below about 10%:

Typically the labor force participation rate does not begin to climb until after the underemployment situation has started to abate:

Finally, at least in the last several cycles since the secular surge of women entering the labor force, wages for nonsupervisory workers have started to accelerate before the participation rate for prime age workers turned up:

Since housing and retail sales have continued to rise, I anticipate that uneremployment will continue to decline, and jobs, nominal wages, and the prime age participation rate will continue to increase.