October jobs report: Robust job growth minus wage pressure equals NOT-full-employment.

November 1st, 2019 at 9:44 am

Payrolls rose 128,000 last month, well above expectations for 85K, and job gains in the prior two months were revised up by 95,000 (a sizable upward revision). Also, the October gain of 128K was dampened by the absence of about 50,000 striking workers at General Motors who are now back at work as the strike ended. In other words, despite slowing global growth, political uncertainty, weakening trade flows hit by the trade war, the U.S. job creation machine remains in high gear.

What’s missing–and it is a serious omission–is wage growth. Yes, wages are rising at a decent yearly clip of around 3% and importantly, they’re beating inflation which is running below 2%. But if anything, wage growth, at least for the series in this report, has decelerated in recent months (see figures below; another series show flattening; none show acceleration). This, along with weak inflation data, strongly suggests the labor market is not at full employment. If it were–if labor demand was strong enough to trigger clear supply constraints–we’d see be seeing considerably more wage pressure.

The unemployment rate ticked up to 3.6% last month, but for good reasons: more workers entering the workforce, as the labor force rate also ticked up slightly. At 63.3%, it’s the highest it has been since August 2013. More important, since the overall rate includes elderly people leaving the job market for retirement, the closely watched prime-age employment rate rose to 80.3%, climbing back for the first time to its 2007 peak. This is evidence that persistent, high-pressure labor market is pulling people in, and another indicator that labor market capacity is greater than many believed to be the case earlier in the recovery.

Another indicator of the benefits of running a high-pressure job market is seen in the African American unemployment rate, which at 5.4%, hit an all-time low last month with data going back to 1972. Due in part to systemic racism, black unemployment rates–at all education levels–are higher than those of whites. Pushing the other way, however, is the fact that minority workers often respond more strongly than whites to cyclical gains of the type we’ve been seeing of late. It is thus notable that over the past three months (August, September, and October) the black/white unemployment gap has been the lowest on record. Since 1972, the average gap (black unemp – white unemp) has been about 6 percentage points. Over the last three months, it was 2.1, 2.3, and 2.2 respectively.

Readers know that we use our monthly smoother to boost the signal-to-noise ratio in the payroll data by taking averages of monthly gains over 3, 6, and 12 month periods. This month’s smoother has an extra set of bars, as we’ve (where “we” means the remarkably efficient Kathleen Bryant) added 50K back into the payroll gains to account for the strike. Doing so reveals a quite strong pace of job gains over the past 3 months of 192K. The 12-month average yields a longer-run trend of around 180K, also a strong number, and easily big enough to keep the unemployment rate below 4 percent for the near future.

So where’s the wage pressure? The next two figures show wage growth clearly accelerated as the job market tightened, then stalled in recent months. I’m sure some commentators will make the point that as unemployment has bottom out in the mid-3’s (i.e., it’s not been falling further), we shouldn’t expect wage acceleration. (Technically, this argues wages are on the wage-Phillips-curve line.) It’s a fair point, but it also implies that employers are not facing pressures to further bid up pay to get and hold onto the workers they need to meet the demand for the goods and services they’re selling. And absent these pressures, along with a) weak inflation data and b) the higher participation figures cited above, the fact remains that while the U.S. job market is going strong, it’s not yet at full employment.




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4 comments in reply to "October jobs report: Robust job growth minus wage pressure equals NOT-full-employment."

  1. elkern says:

    Looking at the last two graphs… the 1st graph (Overall Hourly Earnings Growth (“HEG”?)) shows a recent sag/deceleration which is not mirrored in the Blue-Collar+Non-Manager HEG. This seems to imply that Managers are seeing less wage growth than “managees”, which is fine by me. Could just be low-end wages catching up a bit, after decades of all the extra money getting sucked uphill? OTOH, I might be missing important details in the definitions of the data.

  2. Gregory Bott says:

    Weak report. You forgot to excensus. I suspect more weakness in the future.