So Much For Consumption Leading Economic Growth

January 10, 2015 0 Comments

Had a pretty busy weekend, so I didn’t have much time to record much of my thoughts. However, for those of us paying attention, the last Employment Situation report was a real interesting one. For one, we can start out by saying that I was wrong about job report being a surprise, as the economy managed to create 252,000 jobs in December, greater than the 230,000 estimated. With that said, the unemployment rate dropped to 5.6% from 5.8%.

Unfortunately, that is the only bit of good news we got from the last jobs report. Wages, as in average hourly earnings, dropped in December by 0.2% month-over-month, moving from 2.11% to 1.7% annualized. That is the largest drop ever recorded by the BLS:

Also, if you look at Average Hourly Earnings of Production and Nonsupervisory Employees, the drop is even greater. I’m not sure I can make sense of this. I’m sure there are plenty of logical explanations for the drop in wages, but unfortunately, I can’t think of any. Ideally, if wage growth is surpassing the growth in employment, then average earnings should be growing. In this particular situation, they dropped, which means there must be a problem with the types of jobs being created. Which are:

The Education & Health industry, as well as Construction, created 48,000 jobs each, which are fairly high paying jobs. Besides that, the economy also created a ton of Leisure and Hospitality, as well as Temporary Jobs, which are pay below the average. This could be a reason why wages have fallen last month. The economy actually added the most Food and Accommodate jobs since 2012.

2015 was supposed to be the year where the economy takes off. Considering the ‘awesome’ month it had in November, along with the price of gasoline falling, consumers are supposed to be taking that addition savings from falling gasoline prices and spending it on other areas of the economy. So far, that pipe dream seems to be getting farther and farther away from reality.

At this point, the economy will have to create 10s of millions of jobs just to return average hourly earnings back to pre-recession levels. Fortunately, we can always blame the fact that individual states haven’t increased the minimum wage high enough on the lackluster 

1,790 total views, 2 views today

Filed in: Economics • Tags: ,