On Friday morning, we saw wages for American workers grow by the smallest amount on record.
The employment cost index showed that American workers got a 0.2% raise during the second quarter, with wages rising 2% over the prior year. Both of these were steps down from the first quarter, when wages rose 0.7% over the prior quarter and 2.6% over the prior year.
But this report had some good news buried in it: “blue collar” workers actually saw solid wage increases.
The following chart, which comes to us from Be spoke’s George Pearkes and New River Investments’ Matt Busigin shows that for “blue collar” workers, which includes things like the service sector, manufacturing, and construction, wages actually rose 3.3% in the second quarter.
Meanwhile “white collar” wages — notably for sales jobs — fell 1.2%.
So the good news here is pretty simple: people who are part of what folks like to call the “real economy” are still seeing things get better.
And while the headline number on Friday morning was jarring, Wall Street economists also saw some of the report’s details as not quite as discouraging as initially thought.
In a note to clients following the report, economists at Barclays wrote that, “The reading of the headline ECI measure is significantly weaker than expected, but the detailed breakdown of the data suggests this slowdown is not broadly based.”
And this is a big deal for the Federal Reserve.
On Thursday, we wrote that the upcoming month of economic data was among the biggest stretches for the US economy in years. And after Friday, this is still the case.
We’ve got 2 jobs reports before the September Fed meeting, when some in the market anticipate the Fed could raise rates for the first time since 2006. For this to happen, the Fed said earlier this week it would need to see “some” improvement in the labour market. And this might not be a hard bar to clear.
Citi’s Steve Englander wrote in a note to clients earlier this week if the July and August jobs reports show payroll growth of at least 210,000 a month — which is right around the economy’s trend over the last year — it would be enough to push the Fed to act.
Additionally, with this kind of payroll growth, the official unemployment rate would likely fall within the Fed’s 5%-5.2% band at which it would consider the economy at “full employment.” In a speech on Friday, Princeton economist Alan Krueger, formerly chairman of the White House’s council of economic advisors, argued that the US economy is basically there.
And so while on the one hand, some declared Friday’s ECI report — and the chart featured at the top of this post — the most disappointing chart in the US economy, when you take a step back the situation on the ground is more or less what it’s been.
The US economy is growing, not spectacularly but it is growing, and with a few more months of solid job growth, the Fed will probably be compelled to act, because behind some noisy headlines, things are still getting better for regular Americans.