Monday, April 9, 2018

Scenes from the March employment report: no change in ongoing trends

 - by New Deal democrat

While it certainly has shortcomings, there is simply no other report that captures in timely fashion the factors that matter most to the vast majority of Americans' economic well-being than the monthly jobs report.

Let's take a look at a few of the things that stood out.

First of all, marking myself to market, last week I said I was expecting another good employment report. That didn't happen, as at least on the surface, neither of my forecasts panned out. So let's start there.

Historically, consumer spending leads hiring.  I thought the surge in spending last autumn would continue to be felt in March.  Not so as of the preliminary report!:

But even with the miss, Q1 hiring was the highest in a year. We'll see what revisions do (for example, last September's originally reported -33,000 job loss has been revised to a gain of +14,000), and I still do expect some further carryover from spending to hiring this quarter.

Incidentally, even with the surprisingly low monthly gain, it was enough so that YoY job growth still exceeds the increases in the Fed funds rate -- which would have been a "yellow flag" caution of an increased risk for a downturn in the economy under the simple employment model I have been toying with recently:

I also expected the unemployment rate to decline to a new low. That actually did happen, but not by enough when you round out to the nearest 10th, as the unemployment rate fell from 4.14% to 4.07%:

A favorable change of 40,000 in either or a combination of jobs or the civilian labor force would have been enough to lower the rounded number to 4.0%.

Until recently, the level of labor force participation has been a big issue. That isn't entirely abated, but it is abating (blue in the graph below):

What remains a big issue is the lack of wage growth (red in the graph above). Below are all wages YoY (blue) compared with wages of non-managerial workers YoY:

The 80% or workers who aren't managers or professionals are still seeing really mediocre wage growth (and virtually none at all if we factor in inflation).

We can use this to back into managerial wage growth, but that is best viewed on a quarterly basis, because the sample size is smaller (only 20% of the total) and so much noisier on a monthly basis:

I continue to believe that the surge of people back into the labor force  during the last two years -- the biggest such surge in several decades -- is creating a bigger pool of job candidates and is thus at least one explanation for the poor wage growth of nonsupervisory employees. 

Recently, an explanation for the quandary of poor wage growth has emerged that highlights the effects of monopsony -- that is, employers with the market power to hold down wages. I want to discuss that at some length, and consider at least two other potential explanations: skittish economic expectations and an  emerging taboo  against raising wages. I will do that in a separate post.