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Wage Growth Highest Since 2009

One of the many positive bits of data from Friday’s labor report was that average hourly earnings jumped 0.3 percent from April to May and are now 2.3 percent higher from a year ago, the biggest annual gain since 2009. In this item at the Atlanta Fed’s macroblog blog, they find an even more inspired upward trend when looking at the 3-month average.

Naturally, it will be important to see how this plays out over the summer since, in recent years, rising wages have been one of the key missing ingredients to a more robust (and much more interesting, inflation-wise) recovery.

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What a Difference Two Percent Makes?

The chart below from this item at the Wall Street Journal’s Real Time Economics Blog may go a long way in explaining why wages aren’t rising nearly as fast as  they should be, given the tumbling jobless rate and steady rise in non-farm payrolls over the last few years.

While the overall jobless rate is now back to the pre-2008 norm of the low 5 percent range (and, yes, the historically low participation rate has helped push this down), the make-up of that workforce is different enough (i.e., part-time workers for both reasons in the chart above are about one percentage point higher than before the financial crisis) that pressure on wages is much less than it would otherwise be (or so the theory goes).

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A Stinker of a Jobs Report

It’s probably a good thing that financial markets are closed today in observance of the Good Friday holiday as today’s big jobs report miss would no doubt have sent traders into a frenzy of some sort, direction of markets unknown. Now they’ll have the long Easter weekend to think about the implications of the data shown below via this story at CNN/Money.

In addition to falling well short of the consensus estimate of nearly a quarter million new jobs, prior months’ labor market gains were revised downward by 69,000. Also, it’s important to remember employment is a lagging indicator that, now, may be confirming what many other indicators are pointing to – sharply slower growth for the U.S. economy.

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Another Way to Look at the Job Market

Among the Federal Reserve’s dozen or so ways to look at the labor market as they debate monetary policy next week will no doubt be this new alternative found at the Wall Street Journal Economics blog in which the difference between the U3 jobless rate and the U6 gauge of under-employment is charted (recall that U6 includes U3 plus discouraged workers and those stuck in part-time jobs who would like full-time work).

Interestingly, back in January 1994 (the first month that U6 is available), the two components were slightly different. The U3 rate back then – about three years after the 1991 recession – was nearly 12 percent and the U3 rate was 6.6 percent versus, today, when U6 is 11.0 percent and U3 is 5.5 percent.

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The Jobs “Recovery”

Between the dubious calculation of the 5.5 percent unemployment rate (e.g., last month’s decline from 5.7 percent had much more to do with the 354,000 people who left the labor force than the 96,000 who found jobs) and the quality of the jobs the American economy now creates (e.g., employment for waiters and bartenders surpassed the 11 million mark for the first time last month), the current environment will someday probably be looked back upon as “the recovery that wasn’t” despite all the signs being clear to see such as the chart below from this item stumbled upon at Confounded Interest.

It seems that more people have been added to the disability rolls than to the labor force over the last four years and, while I suppose it’s better that the former are not starving, I can’t help but recall a conversation with an 82-year old skiier a couple weeks ago where he described his recent double-knee replacement surgery.

While being quite pleased about being out and about again (I hope I’m still skiing at 82), his biggest gripe was that all the other people getting knee replacements were much younger and obese. “No wonder they need new knees”, he remarked.

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