A nice wage pop in January should be welcomed, not feared!

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

Payrolls rose 200,000 last month, the unemployment rate held steady at 4.1% and wage growth popped up to 2.9%, it’s the fastest year-over-year growth rate since mid-2009. In other words, here’s yet another strong jobs report.

Our jobs-day smoother averages out some of the monthly noise in the payroll data by taking averages over 3, 6, and 12-month periods. As shown below, payrolls are up a strong 192,000, on average, over the past three months, a very nice job-growth pace at this point in the expansion. In fact, the slight acceleration in the figure suggests there may be more room-to-run in this economy than we previously thought, which—co-inky-dink!—happens to be the punchline of a new paper from our Full Employment Project.

As CNBC anchor Becky Quick pointed out this morning during their segment in which I joined, we may be entering that phase of the cycle where good news on Main St. is bad news on Wall St. That is, accelerating wage growth may lead the Federal Reserve to tighten faster, slowing overall growth more than currently expected. That certainly was the market reaction this morning, as the 10-year bond yield spiked on the report, suggesting concerns about future inflation and a more aggressive rate-hike schedule at the Fed.

However, as I note below, there are excellent reasons to embrace and welcome, not fear, faster wage growth.

First, some other notable aspects of the report:

–The African-American unemployment rate jumped up from its record low of 6.8% to 7.7%, another reminder of the volatility in these monthly numbers.

–The employment rate of prime-age workers (25-54) is an alternative metric of the strength of labor demand. Its peak was 80.3% in January 2007, and it eventually fell to a trough of 74.8%. Last month, it was 79%, meaning it has recovered 4.2 out of 5.5 percentage points, or about three-quarters of its lost ground. Whether this labor-demand proxy can continue to make back its losses (and more) is a key and hotly debated question. The figure below suggests a strong, ongoing response to the expansion, underscoring the more-room-to-run point. On the other hand, the series has been stuck at around 79% for the past five months, so it could be at its ceiling.

 

–Job growth was solid across most industries with one notable exception being state government, down 11,000 last month and 39,000 over the past year. This may reflect budget squeezes still facing some state governments.

–There were some weak spots in the report. Wage growth for the lower-paid 80% of the workforce that have production or non-managerial jobs was up only 2.4%, implying that faster wage growth last month mostly benefited higher-paid workers.

–Also, weekly hours pulled back a bit, leading to a 0.5% decline in total weekly hours in the private sector, an early measure of macroeconomic strength in the quarter.

Turning to why faster wage growth is good news, consider these points.

–People who depend on their paychecks rather than their stock portfolios, which is, of course, most working-age people, need a chance to make up lost ground. One place to see this is in the national share of income going to compensation, which took a big hit in the last recession and has yet to recover.

–Don’t assume wage growth is inflationary. Productivity plus the Fed’s target inflation rate equals about 1%+2% right now, meaning 3% nominal wage growth is consistent with stable prices. But re-balancing the labor share of income—from profits to paychecks—is also non-inflationary.

–Another thing you shouldn’t assume is that wage growth will automatically map onto price growth. That correlation has been very low in this economy.

–One month does not a new trend make! Check on the figures below, which show the trend in annual hourly wage growth for all private sector workers and for the lower-paid group noted above. The 6-month moving average is the right way to look at this, and it still looks pretty flat.

 

 

That said, it’s true that some other wage series show a bit more acceleration, which is, of course, exactly what you’d expect at this point in the cycle! So, fear not wage growth, my friends, but welcome it with open arms…and patience at the Fed.

***

Reposted from On the Economy

Jared Bernstein joined the Center on Budget and Policy Priorities in May 2011 as a Senior Fellow.  From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden, executive director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team. Prior to joining the Obama administration, Bernstein was a senior economist and the director of the Living Standards Program at the Economic Policy Institute in Washington, D.C. Between 1995 and 1996, he held the post of deputy chief economist at the U.S. Department of Labor. He is the author and co-author of numerous books, including “Crunch: Why Do I Feel So Squeezed?” and nine editions of “The State of Working America.”

Posted In: Allied Approaches, From Jared Bernstein

Union Matters

Get to Know AFL-CIO's Affiliates: National Association of Letter Carriers

From the AFL-CIO

Next up in our series that takes a deeper look at each of our affiliates is the National Association of Letter Carriers.

Name of Union: National Association of Letter Carriers (NALC)

Mission: To unite fraternally all city letter carriers employed by the U.S. Postal Service for their mutual benefit; to obtain and secure rights as employees of the USPS and to strive at all times to promote the safety and the welfare of every member; to strive for the constant improvement of the Postal Service; and for other purposes. NALC is a single-craft union and is the sole collective-bargaining agent for city letter carriers.

Current Leadership of Union: Fredric V. Rolando serves as president of NALC, after being sworn in as the union's 18th president in 2009. Rolando began his career as a letter carrier in 1978 in South Miami before moving to Sarasota in 1984. He was elected president of Branch 2148 in 1988 and served in that role until 1999. In the ensuing years, he worked in various roles for NALC before winning his election as a national officer in 2002, when he was elected director of city delivery. In 2006, he won election as executive vice president. Rolando was re-elected as NALC president in 2010, 2014 and 2018.

Brian Renfroe serves as executive vice president, Lew Drass as vice president, Nicole Rhine as secretary-treasurer, Paul Barner as assistant secretary-treasurer, Christopher Jackson as director of city delivery, Manuel L. Peralta Jr. as director of safety and health, Dan Toth as director of retired members, Stephanie Stewart as director of the Health Benefit Plan and James W. “Jim” Yates as director of life insurance.

Number of Members: 291,000 active and retired letter carriers.

Members Work As: City letter carriers.

Industries Represented: The United States Postal Service.

History: In 1794, the first letter carriers were appointed by Congress as the implementation of the new U.S. Constitution was being put into effect. By the time of the Civil War, free delivery of city mail was established and letter carriers successfully concluded a campaign for the eight-hour workday in 1888. The next year, letter carriers came together in Milwaukee and the National Association of Letter Carriers was formed.

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There is Dignity in All Work

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