I’ve got three simple messages for you regarding today’s jobs report.
First, and most important, do not let the negative headline payroll number of -33,000 — the first negative in seven years — throw you. The temporary, negative blip comes to us courtesy of Harvey and Irma, the hurricanes that roared through Texas and Florida last month, disrupting lives, of course, but also wreaking havoc with the BLS payroll employment survey. In fact, the bureau reports that more than 11 million workers were employed in FEMA-designated disaster areas, amounting to almost 8 percent of the nation’s employment.
Here’s a good example of what I’m talking about. Consider restaurant employment, which is especially susceptible to weather-related disruptions. Jobs in food services and drinking places have been rising at a decent clip of about 25,000 per month, but last month they declined by 105,000.
Interestingly, while this dynamic temporarily whacks jobs, it artificially boosts wage growth. Here’s how that works. The bureau reported that in food service employment, “a large majority of workers are not paid when they are absent from work. Hence, if these employees were unable to work during the September survey … pay period because they had evacuated, or because their establishments were not open for business due to power failures or other effects of the hurricanes, they were not included on September payrolls.”
Note that last month wage growth was above trend, as average hourly wages rose 0.5 percent over the month and 2.9 percent over the past year (the yearly trend has been around 2.5 percent). But this spike reflects the fact that lower-paid workers tend to be the ones not paid when they can’t get to work, and thus they dropped out of the average wage calculations last month.
Point two is that when you get past the outlier results driven by the storms, the job market continues to tighten, closing in on full employment. For technical reasons about how the different surveys are conducted, the unemployment rate was probably not affected by the storms, and it fell to 4.2 percent last month, its lowest rate in more than 16 years. Moreover, it fell for “good reasons.” Sometimes, you get a bump down in the jobless rate because people leave the labor market. But last month, the closely watched labor force participation rate rose to 63.1 percent, its highest level since March 2014.
Other strong indicators include the underemployment rate, which fell to 8.3 percent, its lowest in a decade, as more involuntary part-timers found full-time work. The employment rate of prime-age (25- to 54-year-old) workers, another closely watched indicator in this recovery, climbed from 78.4 to 78.9 percent, the highest since July 2008.
Point three is that all this great labor market tightness is not translating into wage growth at the rate I’d expect given 4.2 percent unemployment, along with all those other tightening indicators. The figure below shows year-over-year nominal wage growth for blue-collar workers in manufacturing and non-managers in services, with a smooth trend running through it.
Basically, wage growth caught a buzz coming out of the Great Recession, accelerating from 1.5 to 2.5 percent. Then, starting around 2016, it stalled out. Inflation’s been low, last seen rising at about 2 percent, so the buying power of these workers’ paychecks are rising a bit, but not very much.
Next week, on this page, I’ll share some new analysis with you on this where’s-the-wage-growth point. A lot of analysts, myself included, blame slow productivity growth for slower wage growth. As output per hour is rising slowly relative to earlier periods, firms try to sustain their profit margins by holding down labor costs. Of course, at such low unemployment, that should be a tougher play for employers than seems to be the case. So I don’t think slow productivity is the full story.
Something else is pushing against working bargaining clout. For one, there’s more slack in the job market than the unemployment rate reveals. For another, union power isn’t what it used to be. Also, the Fed’s recent interest rate hikes show up in my analysis as slowing the wage growth of less-advantaged workers. Tapping the growth brakes is not helping them.
Finally, if you hear partisans blaming this month’s job losses on President Trump, ignore them. He gets no more blame for this month than he should get credit for recent good months. However, it’s worth remembering that the amped-up intensity of these latest hurricanes has been solidly linked to climate change and its impact on warmer oceans. That is, of course, something Trump revels in ignoring, and for that, he should be fully blamed and held accountable.