Employment Situation….Spencer England

This was another disappointing  employment report  It is looking more and more like the stronger numbers last winter stemmed more from the mild weather rather than a strengthening of underlying trends.

The headline or payroll report showed a gain of 115,000 jobs– 130,000 in private jobs and a 15,000 drop in government employment.

 The work week was unchanged so the index of aggregate hours worked only rose 0.1%. The previous  report was revised higher so that hours worked versus trend looks a little better than it did last month.

Even though the gains in hours worked is weak, compared to the other two jobless recoveries in the1990s and 2000s it looks fairly strong. 

My thesis from last month that the slowing of employment growth was partially a product of firms trying to rebuild productivity growth still looks valid.  In the productivity report, the growth in unit labor costs  slowed from 3.1% to 2.1% while the increase in the nonfarm business deflator slowed from 2.1%

 to 1.8%  So the spread between unit labor cost is now only 0.3 percentage points versus 1.1 percentage points a quarter ago.  Given that labor compensation is  58.7% of costs this should be consistent with single digit profits growth.

But average hourly earnings and weekly earnings growth continue to show very modest gains. As long as wage and earnings growth remain this weak a significant acceleration of either inflation or aggregate demand remains unlikely.