February 06, 2016
In most ways the January employment report was weaker than most economists had expected (not me, my jobs prediction was 140,000). However, many reporters seized on the 12 cent reported rise in wages in January to say that wages are finally starting to rise at a healthy pace. This was indeed a large one-month jump, but the 2.5 percent rise over the last year was pretty much the same we had been seeing for many months. (The Post piece took the 2.9 percent annual rate over the last six months to claim a more solid rise.)
There are two points to make on this wage growth. First, the monthly numbers are extremely erratic. The Labor Department reported zero growth in the hourly wage for December. It is almost inconceivable that average wages didn’t rise at all in December and then suddenly jumped 12 cents (0.5 percent) in January. This is why it is best to do some averaging.
The six month average used by the Post is better than taking a single month, but can also be misleading. If we had done six month averages last year, we would have been happy to see a rise of 2.6 percent over the prior six months in August, only to be disappointed when it dropped to 2.2 percent in September. My preferred approach is to compare the average wage of the last three month period (Nov to Jan in this case) and compare it to the average for the prior three month period (Aug to Oct). That produces an annual rate of 2.45 percent in this case. Not much evidence of an acceleration of wage growth in this story.
The other point is that the rise in January was almost certainly helped by the effect of a rise in many state and local minimum wages at the start of the year. The average hourly wage in the leisure and hospitality sector rose by 0.8 percent in January. This is important to note, since we will not see this effect repeated in future months. In short, we should hold the applause on wage growth until we see it confirmed by more data. (On this point, it is worth noting that the Labor Department’s Employment Cost Index for the 4th quarter showed no evidence of any acceleration in the growth of wages or compensation.)
It is striking that the bad news in this report has been largely overlooked. In the addition to the slower than expected jobs growth, some of the measures on the household side were not good. Both the average and median length of unemployment increased, as did the share of long-term unemployed. Also, the percentage of unemployment due to voluntary job leavers fell. At 9.9 percent, it is at a level that would be expected in a recession, not a strong labor market.
In short, while not a terrible report, this is not one that should have prompted celebration.
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