The December jobs report released today (Friday) by the U.S. Department of Labor highlights what’s missing in the job market’s recovery: wage growth.
That was enough to push the unemployment rate down to 5.6%.
But those numbers were not enough to distract from the bigger story of falling wages.
Average hourly earnings for all employees on private nonfarm payrolls in December decreased by $0.05 to $24.57. That slippage more than halved November’s hourly wage gain of $0.09.
Hourly earnings of private sector production and nonsupervisory employees slipped by $0.06 to $20.68.
Year over year, average hourly earnings have risen a meager 1.7%. That’s below the paltry 2% pace that prevailed throughout the overall job market recovery. It’s also well below the 3% rate economists say is healthy.
Also troubling in Friday’s jobs report was the uptick in individuals leaving the workforce. Some 300,000 people dropped out of the workforce last month.
In addition, a record 92,898,000 Americans did not participate in the labor force in December. That's 456,000 more than the 92,442,000 Americans who didn’t partake in November.
But the wages story is the most troubling…
Steve Pressman, professor of finance and economics at Monmouth University in West Long Branch, N.J., spoke to Money Morning to explain why the wage growth issue is so concerning.
“The estimate of a large average wage increase in November was revised downward substantially, and today’s report finds a decline in wages in December that nearly wipes out the entire November wage increase that gave us hope last month,” Pressman said.
“Unless wages start rising, the U.S. economy will remain caught in a vicious circle. We need wage growth for economic growth and economic growth for job and income growth.”
Wages pressures are being closely watched as the U.S. Federal Reserve mulls an interest rate hike. With U.S. households still saddled with excessive debt, an interest rate hike would surely hamper the ongoing recovery.
“If the Fed starts raising interest rates this year (as they have hinted), while wages continue to stagnate, consumption can’t increase and stimulate the economy,” Pressman explained.
“Besides slow growth, around half the unemployment decline during the past two years has been due to people leaving the labor force rather than people getting jobs. This is also the main reason for the December drop in the unemployment rate. There are limits to how much more this can happen – people need to work to support themselves and their families.”
Unfortunately, the pink slips just keep coming…
This week alone, four key sector players announced layoffs:
Those are ominous signs as we kick off 2015.
“With slow economic growth and a need to work, it is unlikely the U.S. unemployment rate can fall by 1 percentage point in 2015 – the average decline in 2013 and 2014,” Pressman concluded. “Something at half this rate or less is likely.”
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