Best Workers' Wages and Benefits in 11 Years

Financial FAQs

MarketWatch.com

Workers’ wages and benefits are finally rising at a decent clip, said the Labor Department. Total compensation, including health and pension benefits, rose in 2018 2.9 percent, up from 2.8 percent in 2017. That’s the biggest 12-month increase since the fall of 2008, reports MarketWatch.

The BLS just reported that Compensation costs for civilian workers increased 0.7 percent, seasonally adjusted, for the 3-month period ending in December 2018. Wages and salaries (which make up about 70 percent of compensation costs) increased 0.6 percent and benefit costs (which make up the remaining 30 percent of compensation) increased 0.7 percent from September 2018.

And as a prelude to tomorrow’s unemployment report, the weekly initial jobless claims reported by states rose abruptly in the January 26 week, up 53,000 to a 253,000 level that leaves the forecasters, at a consensus 220,000 and a high estimate of 225,000, scratching their heads. This is the highest total in more than a year-and-a-half.

Econoday.com

Was this an anomaly? Furloughed Federal employees from the government shutdown may be some of the answer but not all of it. They did add nearly 15,000 to the headline drop which is down more than 10,000 from the prior week, said Econoday. Contractors tied to the government (who don’t get any back pay) also likely added to the total though there are no specifics available in the data.

This leaves guesses about tomorrow’s January unemployment report up in the air. It’s likely to be much less than the gangbuster’s December report of 317,000 payroll jobs rise. It’s more likely to be around 180,000, which isn’t bad after all the geopolitical problems, such as Trump’s trade wars. Other countries are beginning to retaliate with their own higher tariffs. This doesn’t make for optimistic prognostications about future growth.

The International Monetary Fund is also downgrading worldwide growth due to the growing uncertainties such as whether Brexit will happen and the EU’s slowing growth, along with declining world trade projections.

The 2017 Republicans’ Tax Cut and Jobs Act hasn’t helped, either, which MarketWatch’s Howard Gold has labeled the Shareholder and CEO Enrichment Act of 2017.

“Corporations, big shareholders and top corporate executives reap the lion’s share of the gains from the 2017 tax cut. It didn’t boost economic growth that much, didn’t start a capital spending boom or U.S. manufacturing renaissance, didn’t bring overseas profits back home, and might have led to modest job growth but little discernible wage increases. And we’ll all be stuck with the bill for a long, long time.”

But why focus on the negatives, when American workers are finally benefiting from being fully employed? Job growth has picked up, having risen by 2.6 million in 2018, vs. a gain of 2.2 million in 2017. It’s unclear how much of that can be attributed to the tax cut, as I said, since health care and professional and business services jobs set the pace, as they have for the past 30 years.

Let us see what tomorrow’s unemployment report looks like before we make any rash growth projections for 2019.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Full Employment Reached—161,000 Payroll Jobs

Popular Economics Weekly

Average hourly earnings are up 2.8 percent annually, a recovery high. Nonfarm payroll growth was up 161,000 with upward revisions adding a net total 44,000 to September (191,000) and August (156,000). The unemployment rate is down 1 tenth to 4.9 percent and, for some, is already signaling full employment for the labor market, said the Bureau of Labor Statistics.

Graph: Marketwatch

We are reaching full employment levels, in other words, which will surely mean the Fed raises short term rates in December. Rising wages are two-thirds of product costs, which means the Fed Governors believe higher inflation has to be immanent.

But where is it? The overall PCE price index is up just 1.2 percent annually. This is the strongest yearly showing since November 2014 and is 2 tenths closer to the Federal Reserve's 2 percent target. Yet employment costs aren’t rising with the so-called Employment Cost index, the sum of benefits and salaries, no higher than 2.5 percent in a year.

The increase in hiring last month, along with stronger job gains in August and September than previously reported, shows the seven-year-old economic recovery still has plenty of life despite a slowdown in growth earlier in the year, says Marketwatch.

Q3 GDP growth rose to 2.9 percent, and fourth quarter growth looks to be strong, as well. Health care companies, white-collar professional outfits, and financial firms led the way in job creation, all in the service industries, while mining and manufacturing payroll employment declined.

Better news was that a broader measure of unemployment fell to 9.5% from 9.7%, touching the lowest level since May 2008. The so-called U6 rate includes part-timers who can’t find a good full-time position and discouraged jobseekers who’ve recently given up looking for work.

Also 19,000 new government jobs were added. Health care employment rose by 31,000 in October. Over the past 12 months, health care has added 415,000 jobs. Employment in professional and business services continued to trend up in October (+43,000) and has risen by 542,000 over the year. Over the month, a job gain occurred in computer systems design and related services (+8,000). Employment in management and technical consulting services continued to trend up (+5,000).

U.S. Manufacturing is also strong, according to the ISM’s Manufacturing Index. "The October PMI^® registered 51.9 percent, an increase of 0.4 percentage point from the September reading of 51.5 percent, “ said Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management^® (ISM^®) Manufacturing Business Survey Committee. . “The New Orders Index registered 52.1 percent, a decrease of 3 percentage points from the September reading of 55.1 percent. The Production Index registered 54.6 percent, 1.8 percentage points higher than the September reading of 52.8 percent. The Employment Index registered 52.9 percent, an increase of 3.2 percentage points from the September reading of 49.7 percent.”

So employment, production and deliveries were up, though new orders dropped slightly. This all has to mean the Fed will shortly (i.e., after the Presidential election) probably raise their short term rates another 0.25 percent, which means the Prime Rate of 3.50 percent that controls revolving credit rates for starters, is due to rise at least 0.25 percent.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Q3 GDP Growth Fastest In 2 Years

Financial FAQs

Third quarter GDP growth was the fastest in two years, aided by a spike in soybean and other U.S. exports and a rebound in the size of inventories companies keep on hand for sale, reports the U.S. Bureau of Economic Analysis. Critics are saying this can’t last, because soybeans are not a dependable export, and inventories tend to fluctuate wildly. When exports drop below imports, the difference subtracts from growth.

The BEA said gross domestic product, the official scorecard for the economy, expanded at a 2.9 percent annual clip from July through September. That’s a marked improvement from the first half of the year when the U.S. grew just barely over 1 percent.

And mainly because of full employment and rising wages, consumers are spending again and should through the holiday season. So we should see excellent GDP growth prolonged into Q4 as well.

Personal consumption expenditures rose at a solid 2.1 percent annualized rate led by an important durables component which surged at a 9.5 percent rate (i.e., things like autos that last more than 3 years). Personal consumption was the largest contributor in the quarter, adding 1.5 percentage points to the quarter's GDP rate.

Boosted by foods and specifically soybeans, exports rose at a double-digit 10.0 percent rate, more than offsetting a 2.3 percent rise in imports—which are subtracted from exports, as I said, so that net exports added 0.8 percentage points to the quarter.

Another important positive in the report is a second straight quarter of improvement in what has been low business investment. Contributing 0.2 percentage points to GDP, so-called nonresidential fixed investment rose at a 1.2 percent rate on top of the second-quarter's 1.0 percent rate. Inventory change was also a positive in the quarter (0.6 point contribution) as were government purchases (contributing 0.1 percentage points). A negative for a second straight quarter was residential investment, falling at a 6.2 percent rate and pulling GDP down by 2 tenths.

Graph: Econoday

Another number that buttresses higher growth is the Employment Cost Index, a little-known indicator that tracks actual wages and benefit costs. It shows that wages and salaries are rising again, and which means more buying power for consumers.

For the third straight quarter, employer costs rose a quarter-to-quarter 0.6 percent in the third-quarter. Component contributions shifted slightly with wages & salaries down 1 tenth to plus 0.5 percent and benefits up 2 tenths to plus 0.7 percent. Year-on-year, total costs held steady at a moderate plus 2.3 percent with wages & salaries dipping 1 tenth to 2.4 percent and benefits up 3 tenths to 2.3 percent.

This doesn’t really show higher inflation, but since employment costs are two-thirds of product costs, the Fed watches it closely for that reason. But who knows? The stock and bond markets are predicting a near-term hike in short term rates, when Fed Chair Yellen hasn’t yet indicated such hikes are imminent.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

A return to Goldilocks Growth?

Financial FAQs

We could be back in the ‘goldilocks’ economy that was talked about several years ago. Growth is not too hot or too cold as we near full employment with very little inflation. It means the U.S. economy isn’t yet close to over-heating. In fact, the reason there is such low inflation is because GDP growth hasn’t been able to break out of the 2 percent range. And what will happen if it does?

For starters, weekly initial jobless claims keep falling. “In the week ending August 6, the advance figure for seasonally adjusted initial claims was 266,000, a decrease of 1,000 from the previous week's revised level. The previous week's level was revised down by 2,000 from 269,000 to 267,000, according to the Labor Department.” There were no special factors impacting this week's initial claims. This marks 75 consecutive weeks of initial claims below 300,000, the longest streak since 1970, said the Labor Department.

Graph: Calculated Risk

And we are seeing almost no inflation. The retail Consumer Price Index is sticking to a 1 percent inflation rate of late and has been close to zero in the past year—which is scary. At any other time, it would be a sign of impending recession, but not in a economy close to full employment with more than 7 million still looking for full time work, and a BLS JOLTS report that says there are 5.6 million job openings.

Graph: Trading Economics

Why so little inflation with so many jobs being created? Low commodity prices, such as for oil, still at post-recession lows, are hurting the mining and energy sectors, which have laid off workers. The latest Producer Price Index for final demand has fallen to -0.2 percent year-over-year, and is up just 0.7 percent over the past year, even excluding food and energy prices.

Though most product costs come from labor costs, and the so-called Employment Cost Index has been barely rising. Compensation costs for civilian workers increased 2.3 percent for the 12-month period ending in June 2016, vs. 2.0 percent in June 2015, reports the Bureau of Labor Statistics. Wages and salaries increased 2.5 percent for the current 12-month period, vs. 2.1 percent for the 12-month period ending in June 2015.

Graph: Calculated Risk

Lastly, the so-called JOLTS report shows employment still expanding. The number of job openings was at 5.624 million on the last business day of June, up slightly from 5.514 million in May, the U.S. Bureau of Labor Statistics reported last week.

This is huge, with a total 5.1 million new jobs being created last month. The number of job openings is up 9 percent YoY, and the number of ‘Quits’ (those leaving their job voluntarily) is up 6 percent YoY, usually because they were able to find a better job, or are retiring.

So a goldlilocks-type economy is really a two-edged sword. Such low inflation means we aren’t able to return to the 3.2 percent average growth rate that has prevailed since WWII.

And we know why. Labor costs, which account for two-thirds of product costs, aren’t rising much above the inflation rate as most business profits are either saved or go to stockholders, rather than the employees who would spend it, thus putting the money back into circulation. It also means a large segment of the working population still lives at or below the poverty line.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Unemployment Rate Stuck

Popular Economics Weekly

The U.S. pumped out another 215,000 new jobs in July, but it doesn’t look like this is enough to convince the Fed to begin to raise rates in September. Workers still aren’t getting decent raises and millions of Americans are working parttime, or have stopped looking for work.

The steady flow of new jobs during the late spring and summer offer some evidence the economy is moving again after growth slipped earlier in the year during a harsh winter, for the second successive winter. The U.S. has added an average of 235,000 jobs a month since May, up sharply from a 195,000 pace in the first quarter.

Graph: Marketwatch

The numbers are good, but neither wages nor inflation are rising enough to show any sign of 3 percent plus GDP growth, which is what it takes to reach full employment. Non-farm payrolls rose just about as expected, up 215,000 in July with upward revisions adding 14,000 to the prior two months. But the unemployment rate is unchanged at 5.3 percent.

Wages show some traction, up 0.2 percent in the month with the year-on-year rate over 2 percent at 2.1 percent. The average workweek is up, rising to 34.6 hours from a long run at 34.5. The labor force participation rate, which dropped sharply in June, held at 62.6 percent.

But, the employment cost index that measures both income and worker benefits rose only 0.2 percent in the second quarter, far below expectations and the lowest result in the 33-year history of the report. Year-on-year, the ECI fell 6 tenths to plus 2.0 percent which is among the lowest readings on record.

Why is the question plaguing economists. The Fed’s Vice-Chairman Stanley Fischer believes it is temporary, due to the oil glut and falling energy prices. "The interesting situation in which we are is that employment has been rising pretty fast relative to previous performance and yet inflation is very low. And the concern about the situation is not to move before we see inflation as well as employment returning to more normal levels," he said.

The record ECI low is plus 1.4 percent back in the early recovery days of 2009 when, apparently unlike today, there was enormous slack in the labor market. The ECI's two components both fell back sharply with wages & salaries moving down to plus 0.2 percent from 0.7 percent in the first quarter and benefits to plus 0.1 percent vs the first quarter's plus 0.6 percent. Year-on-year, wages & salaries are up 2.1 percent  with benefits,  despite  Obamacare, below the 2 percent threshold at 1.8 percent. The data are a reminder of the big decline in average hourly earnings during June, which fell 3 tenths from May to 2 percent even.

Graph: Econoday

Other details in the employment report look surprisingly solid with payrolls rising 60,000 in trade & transportation, for a third straight strong gain, and professional & business services rising 40,000 to extend their long healthy run. Retailers continue to add jobs, up 36,000 for their third straight strong gain with the motor vehicle subset up 13,000 and reflecting the strength of car sales. Manufacturing, which is usually weak, rose a notable 15,000 in the month with construction, where lack of skilled labor is being reported, showing a modest gain of 6,000.

Graph: Econoday

Why won’t the Fed from a September rate hike? Inflation is still too low, in part because wages and salaries aren’t yet rising. Inflation in June as measured by the core PCE price index, rose only 0.1 percent for a very low 1.3 percent year-on-year rate that won't be moving up expectations for the Federal Reserve's rate hike. The year-on-year rate is at a 4-1/2-year low and has remained below 1.5 percent since November. The overall price index rose 0.2 percent in June with its year-on-year rate, reflecting the collapse in oil prices, at only plus 0.3 percent.

So the collapse in oil prices, and Iran Nuclear deal seem to be keeping more than inflation in check. It is reducing employment in the energy sector, though helping consumers in other ways. So other areas in the economy will have to take up the slack.

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen