we discussed the lack
of wage inflation and all the slack in the Labor market. To really
understand how little "[wage] inflation and wage growth" there is, we need to go to the
will help explain why the Street has been so wrong on wage inflation; (I have no
answer as to why they have been so wrong on every other type of
I took some of the terrifically instructive charts from a recent commentary by
Northern Trust’s Paul Kasriel, and then annotated them. Italicized comments
are his also. While credit for creating these graphs goes
to Paul, don’t blame him for mucking them up – that’s my handiwork.
All Employees: Total Nonfarm
% Change – Year to Year (NSA, Thousands)
"Year-over-year nonfarm payroll growth appears to be peaking out
around 1.6% — lower than any other cyclical peak in the past 45 years."
As this chart shows, on a year-over year basis, average hourly earnings improvements have been lackluster, only recently rising off of half century lows:
Average Hourly Earnings: Total Private Industries
% Change – Year to Year (NSA, $/Hour)
"On a year-over year basis, average hourly earnings of nonsupervisory private sector workers increased 3.3% in January. This is well below the peaks of over 4% in the prior two expansions."
Since 2000, overall total employment compensation continues to trend lower:
Employment Cost Index
"The fact ECI growth is slowing at the same time that the unemployment rate is falling adds credence to the notion that the unemployment overstates the degree of “tightness” in the labor market."
Participation Rate & Unemployment Rate
"There has never been an expansion cycle in the past 45 years in which the participation rate (those actually in the labor force as a percent of those that could be in the labor force) trended lower save for the current one. Had the labor participation rate risen in a normal cyclical fashion, today’s unemployment rate would be considerably higher"
These charts make clear there that the labor market is anything but tight and that the headline numbers are misleading.
January Employment Report – The True Story is in the Details Not the Headlines
Northern Trust, February 03, 2006