Dec Jobs Report: Dude, Where’s My Raise?


It’s official: 2014 was the best year for job growth since 1999, with a total of 2.952 million non-farm jobs created. The Labor Department reported that the U.S. economy added 252,000 jobs in December and the unemployment rate dropped to 5.6 percent, the lowest level since June 2008. That said, the labor market still remains in the healing phase for at least these four reasons:

  1. We Ain’t there yet: The Hamilton Project at the Brookings Institute examines the “jobs gap,” which is the number of jobs that the U.S. economy needs to create in order to return to pre-recession employment levels while also absorbing the people who enter the potential labor force each month. To keep up with population growth since the recession began, the economy would need to create about 4.6 million additional jobs.
  2. Broad Unemployment Rate is still high: The headline unemployment rate of 5.6 percent is awfully close to the average of 5.5 percent recorded from 1990 – 2006. But the broader unemployment rate (the BLS statistic known as “U-6”, which includes official rate, plus marginally attached workers, those who are neither working nor looking for work, but want a job and have looked for work recently; and people who are employed part-time for economic reasons), stood at 11.2 percent at the end of 2014. While that is down from the 13 percent from a year ago and way down from 17.1 percent seen in April 2010, it is still above the 8 to 9 percent readings observed before the recession started.
  3. Whither the American Worker? The participation rate, which counts the number of Americans who are employed or actively seeking a job, fell to a fresh 36-year low of 62.7 percent. Before the recession started, 66 percent of the working age population either had a job or was looking for one. Economists estimate about half of the drop is attributed to baby boomers retiring, but the other half is likely due to the severity of the recession and something that economists call “labor market scarring,” which means that when some people lose their jobs amid a deep downturn, they find other ways to survive, including relying on friends and family; claiming disability or working under the table.
  4. Dude, Where’s My Raise? Average hourly earnings fell by 0.2 percent in December from the prior month, which put wage growth at just 1.7 percent annually, (Thankfully, because of the big drop in oil and gas, inflationis running at 1.3 percent from a year ago.) In previous expansions, wage growth averaged 3 to 3.5 percent.

Just days ahead of the December jobs report, the Federal Reserve Bank of San Francisco released a paper asking “Why Is Wage Growth So Slow?” (I asked a similar question six months ago, “When Will Americans Get a Raise?”) Authors Mary C. Daly and Bart Hobijn note, “A prominent feature of the Great Recession and subsequent recovery has been the unusual behavior of wages.” At this point you may want to exclaim, “NO KIDDING” or some other expletive, but what was really unusual about the most recent recession, according to the research, is that more workers did not take STEEPER wage cuts.

In past recessions, companies cut wages and then subsequently raised them amid upturns. But in the past three recessions, Corporate America minimized wage cuts and instead laid-off more workers. The goal was to keep the remaining workers happy. Who knew that those who kept their jobs had it better than they thought?

Because many firms did not reduce wages during the recession, “they must now work off a stockpile of pent-up wage cuts.” And because “it takes some time to fully exhaust the pool of wage cuts, wage growth remains low even as the economy expands and the unemployment rate declines.”

That’s why despite putting up the best year for job creation since 1999, wage growth continues to be disappointing. “Industries that were least able to cut wages during the downturn and therefore accrued the most pent-up cuts have experienced relatively slower wage growth during the recovery.” Fed economists say wage growth should slowly pick up, as the labor market tightens and companies are forced to pay up for talent. American workers are waiting...

MARKETS: If the first week of the year is a harbinger for the rest of 2015, we better fasten our seat belts, because it's going to be a bumpy ride.

  • DJIA: 17,737, down 0.5% on week, down 0.5% YTD
  • S&P 500: 2045, down 0.6%, down 0.7% YTD
  • NASDAQ: 4704, down 0.5%, down 0.7% YTD
  • Russell 2000: 1185, down 1.1% on week, down 1.6% YTD
  • 10-Year Treasury yield: 1.97% (from 2.12% a week ago)
  • February Crude Oil: $48.36, down 8.2% on week (7th consecutive weekly loss)
  • February Gold: $1,216.10, up 2.5% on week
  • AAA Nat'l average price for gallon of regular Gas: $2.14 (from $3.32 a year ago)

THE WEEK AHEAD: What’s the upside of stagnant wages? It’s good for corporate profitability. This week kicks off quarterly earnings season and the estimated year-over-year earnings growth rate for S&P 500 companies in Q4 is 1.1 percent, according to Factset. Analysts will also be keeping a close tab on those companies that are either hurt by or benefit from lower oil prices.

Mon 1/12:


Tues 1/13:

7:30 NFIB Small Bus Optimism

10:00 Job Openings and Labor Turnover Survey (JOLTS)

Weds 1/14:

JP Morgan Chase, Wells Fargo

8:30 Dec Retail Sales

2:00 Fed Beige Book of Economic Conditions

Thurs 1/15:

Citigroup, Bank of America, Schwab, Schlumberger, Intel

8:30 Weekly Jobless Claims

8:30 Producer Price Index

8:30 Empire State Manufacturing Index

10:00 Philadelphia Fed Survey

Fri 1/16:

Goldman Sachs

8:30 Consumer Price Index

9:15 Industrial Production

9:55 Consumer Sentiment