Look Out: The Wages Of High Earners Are Starting To Fall

As we wrote on November 5th (see October Employment Situation Note), the expectations raised by October’s headline employment numbers were unwarranted when one looked “under the hood,” as it were. Based on today’s numbers, it is now clear that the condition of the U.S. job creation machinery is still quite rusty and demands continuing overhaul.
Once again, the Household Survey continues to illustrate disturbing trends (setting aside, for the moment, the upward spike in headline unemployment (U-3) to 9.8% and the fact that underemployment (U-6) is stuck at 17.0%):

  • a further decline of 173,000 in the number of people employed;
  • a further decline (although statistically modest) in the employment-population ratio;
  • while 103,000 people were added to the labour force, 276,000 joined the ranks of the unemployed (the principal reason that U-3 increased);

The November report continues the disturbing trend of the Household Survey showing fewer people employed (by headcount, in addition to percentages), whilst the Establishment Survey shows positive, albeit anemic, job growth.  Admittedly, the two surveys are very different accountings of the facts on the ground, but the disparity continues to raise questions regarding the algorithmic adjustments used in each (see the discussion of the birth/death model in the attached note from last month).  The one thing that did work right statistically is that the pick-up of 103,000 in the number of people in the labour force (reversing part of the 254,000 decline in October) was what we would have expected given the positive October Employment Survey numbers, and the perception of opportunity that those numbers portended, however inaccurately, drew people back into the labour force.
By both measures, the fact remains that the U.S. economy is not coming close to creating jobs in sufficient number to absorb new entrants into the employable population, much less enough to absorb the 15.1 million people in the labour force who are without jobs, and 26.2 million souls (yes, a post recession high) who are either without jobs or underemployed, according to the BLS.
Which leads us to the Establishment Survey data:

The private sector added a paltry 50,000 jobs, with the headline jobs number (+39,000) reflecting the continued reduction in the government sector (-11,000).  One cannot help but note that October’s 160,000 added jobs was helped along by 61,000 jobs that were manufactured in the birth/death model, whereas in November the model spewed forth 8,000 drag.  Given that this year, since February, the B/D model has conjured up an average of 91,000 jobs per month, we can expect, as usual, that the annually negative January B/D adjustment will again be substantially negative (it was minus 427,000 in January 2010) and will bring the jobs picture presented in the Establishment Survey closer to that of the Household Survey.

Last month we wrote:

“Structurally, it is also useful to note that the increase in the number of unemployed, and number of people exiting the workforce, came nearly entirely from the statistical cadre over 25 with a college degree of higher – (labour force dropping by 332,000, unemployed rising by 97,000).  Higher paying jobs continue to shrink, lower paying service sector employers hiring cheap labour.  Sticky wages starting to get unstuck as unemployed become more hopeless?  This would be a deflationary signal.  Keep an eye on that hourly wage number going forward.”

So what conclusions do we draw from the November numbers, with respect to the above?

  • Again, the number of presumably higher wage earners (both the subsets (a) 25 and older, and (b) with a college degree or higher) continues to decline, while any job creation at all came in the 16 to 24 year old demographic; and
  • Both hours worked and hourly wages were flat as a board.  Wages, being sticky, are slow to decline – but whether or not you expect to see wage deflation, as we do, this is certainly nothing you would expect in a cyclical recovery.

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