The Real Job Numbers Are Hiding in Today’s Report
The monthly ritual freakout over the Department of Labor’s jobs numbers will take place this morning, despite the fact that almost everybody in the financial media who writes about jobs numbers knows – and has known for some time – that the headline number of the jobs report is not nearly as important as it’s made out to be.
The consensus estimate for this morning’s announcement is that the economy added 230,000 jobs in November. But even if that number – which will be revised twice in coming months – is off in one direction or another, the trend in jobs growth has been clear for some time. The economy is growing steadily, if slowly, and has been for years.
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What’s not clear is the status of workers in the current economy. The unemployment rate has fallen to 5.8 percent, from a high of 10 percent just a few years ago, but wage growth has been essentially flat – a fact that labor economists view as a lot more important than the financial press seems to.
WHY THIS MATTERS
This morning’s job numbers are likely to show an increase in employment of between 200,000 and 300,000 workers — but the news may not be as good as it seems for job seekers and the economy. Wages have been stagnant for months, and it’s unclear when they will start to rise again. Without discretionary income, consumer purchasing power drops and debt rises.
“If the jobs number deviates from what people expect, people will read all sorts of things into it and it will dominate the coverage regardless of whether the wages are up 5 percent or down 5 percent,” said economist Gary Burtless, a senior fellow in economic studies at the Brookings Institution.
Wage growth is important because, among other things, it speaks to the “natural” rate of unemployment in the economy. If the unemployment rate continues to fall, but wages remain flat, it suggests that there is still considerable slack in the labor market, meaning that more Americans who want to work are still without jobs.
For the most part, economists believe that the constant increase in the number of people employed over the past year or more will lead, inevitably, to wage growth.
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“Rising wage gains are just a matter of time,” wrote Ian Shepherdson, chief economist with Pantheon Economics in a Thursday research note.
Others were more circumspect about when wage growth will arrive, though no less sure of its eventual appearance.
“Our research has shown that elevated numbers of long-term unemployed workers have meaningfully weighed on wage inflation in the current business cycle,” wrote Joseph LaVorgna, chief U.S. economist for Deutsche Bank Research. “Hence, we expect only a modest 0.2 percent gain in hourly earnings for November, which would have the effect of reducing the year-over- year growth rate a tenth to 1.9 percent—the lowest since December 2013.”
“However,” LaVorgna wrote, “the number of unemployed workers who have been out of work for over 27 weeks has fallen by nearly 30 percent over the past year so excess slack is being rapidly absorbed. Eventually, this will put significant upward pressure on wages.”
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“Most people agree that the labor market is tightening, but there is still plenty of debate over how tight it is in absolute terms,” wrote Jim O’Sullivan, chief U.S. economist for High Frequency Economics. “Hourly earnings have been rising at a 2 percent-per-year pace, with no sign of acceleration.”
O’Sullivan continued, “We have no basis for expecting any sudden change in the trend in hourly earnings in the November report, but we still think some acceleration is imminent.”
But not everyone is convinced that relief is on the horizon.
“The labor market has been consistently tightening over the last year, and unemployment has been falling for good reasons, not bad ones, and yet we have seen hardly any acceleration in wage growth,” said Jared Bernstein, a senior fellow at the Center for Budget and Policy Priorities.
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“I think what’s going on is that it’s going to take not just falling unemployment, but, in an economy where worker bargaining power is as low as I’ve ever seen it, a sustained very low unemployment rate to get workers the bargaining power they need to see persistent real wage growth that reaches corners of the job market that haven’t seen it for a long time.”
Wage growth may be coming, said Bernstein, “But it will probably take a while.
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