Employment Situation

The September employment report was among the strongest this cycle. Private payroll employment rose 137,000 and despite the 34,000 drop in government employment total
payroll employment rose 103,000. Moreover, the household survey showed a gain of 398,000.
Even so, by historic norms employment continues to be weak. But compared to the other jobless recoveries this cycle continues to show growth somewhere between the 1990s and 2000s cycles.

Because the household survey tends to lead the payroll numbers the large gains in the household survey was encouraging.

Wage growth continues to show weak gains.

I have a wage equations that I’ve used for may years and it is no longer calling for falling wage. Earnings did not fall as the equation suggested immediately after the recession. Because of sticky wages I was not surprised by this . But now I expect wage growth to remain weak to offset the period when average hourly earnings were stronger than the wage equation called for. The equation makes wages gains a function of the unemployment rate, capacity utilization and inflation expectations using the three year trailing CPI as a measure of inflation expectations.

The average work week lengthened and together with the weak wage gains average weekly earnings rose 0.6%, one of the largest gains this cycle. I had been particularly worried about the lack of income growth and saw it as a major threat to economic growth. As of last month real weekly earnings were down some 2.27% over the past years. With weak oil prices real weekly wages should show a nice gain in September.