This is bad: real wages *declined* in January; may be rolling over
This is bad: real wages *declined* in January; may be rolling over
Consumer prices rose +0.5% in January. That in itself isn’t bad news, as they rose an equal +0.5% one year ago, so the YoY inflation rate remains at +2.1% (so if 2% really is a target rather than a ceiling, it should not give the Fed any cause for alarm).
But that much vaunted wage hike in the January jobs report has entirely disappeared, and not just for non-managerial workers, but for the average of all workers including managers. In fact in January real wages declined.
And the trend is a little worrying.
To begin with, real wages declined -0.3% for ordinary workers, and they are now down -0.8% from their July peak:
On a YoY basis, real wages are only up +0.3%:
Even worse, they are only up +0.1% from January 2016!
Note that even when we include managers, real wages fell in January, and are -0.5% below where they were in July:
Another metric that I think is very important is aggregate real payrolls for non-managerial workers. This tells us how much money, in real terms, the middle and working class are earning.
After rising strongly in 2014 and 2015, it decelerated in 2016 and even more in 2017:
Note that, in the aggregate, real wages declined for the middle and working class in January, and they are back at the level they were 7 months ago.
On a YoY basis, real aggregate payrolls rose 2%:
This is undoubtedly why we have seen the personal saving rate decline over the last 6 months:
Also this morning, although Fred hasn’t update the graphs yet, real retail sales declined -0.8%, putting that figure at a three month low.
All in all, this is bad news, not just for the month, but in terms of a stalling trend that may even have rolled over, both in terms of worker wages, and possibly even in terms of real retail sales per capita, a long leading indicator of recession.
NDD,
See my comments to you on your Feb 8 post:
http://angrybearblog.com/2018/02/jobless-claims-make-another-record-low.html#comments
Wages are a function of labor demand, which is a function of goods and services demand which are a function of disposable incomes. Disposable incomes break out to savings rates and consumption.
I noted that savings rates are about as low as they’ve ever been in the past umpty-ump years. That, I said, implies a squeeze on consumer spending capacity which implies a limit to consumer demand which implies that goods and services production have stalled out already, despite the rosy “employment gains” pictures painted.
When goods & services production has stalled out then employment costs have to decline to maintain profits Employment costs are benefits & salaries & hours worked. That means labor is going to or has lost some form of income, –which implies less savings — the first thing consumers cut back on — which is precisely what has been occurring.
So as I said in the 1st week in February in response to your post of that date, it’s only a matter of when wages/salary’s go negative relative to inflation and it looked very imminent already with Decembers reports. .January’s data didn’t reverse anything, and just confirmed the implied state from December’s data..
There’s a heavy bias in predicting future based on current trends… I think the consumer trends (not their “confidence”) in consumption and savings rates plus international value of the dollar (which either makes imports less or more costly and puts more or less competitive pressure on domestic producers — who maintain profits first, not wages/salaries and benefits — have to be taken as a whole composite effect.
And btw, the dollar has just continued it’s slide. putting forcing consumer prices up on imports, thus lower consumption for a given income or lower savings rates. Either are not a good sign or economic growth.
If I’m reading your FRED graphs correctly, real wages were rising before January 2016 but not since then to any degree. So much for that alleged Trump bump.
pgl,
The last two years (last year of Obama’s admin and first year of Trumps) aren’t an effect of Trump’s admin or policies… The first year of a new admin has never (or very rarely) had any effect on the macro economy, especially Trump’s which passed or enacted no significant economic policy changes until recently and which won’t take effect until the latter half of 2018 in any event.
The real wage flat-line for the past two years is due, I think, mostly to the Fed’s increasing interest rates and efforts to increase inflation to 2% and thus private enterprises have been keeping real wages relatively flat on average, even as they hire more labor. There’s clearly been no reason to raise wages more than inflation as there’s been an ample supply of labor available.
‘mostly to the Fed’s increasing interest rates and efforts to increase inflation to 2% and thus private enterprises have been keeping real wages relatively flat on average, even as they hire more labor.’
It was indeed too soon to raise interest rates as labor markets are still not tight.
NDD,
Will you please explain why you called a clearly declining trend for the last 6 months “may be” rolling over? It clearly “rolled over” (past tense) already with 6 months of evidence thereof staring you squarely in the face.
That was preceded by a flat-line trend for an entire year, then a short bump. Before the flat-line trend beginning in Jan 2017, the real wage growth was steadily up at least from July 2015
Steady up, then flat-line, then a short bump, then steadily down are clearly distinguished periods and directions — they aren’t in the least bit ambiguous.
So it is not at all clear to me why you refer to the last 6 months as’ “maybe” rolling over as if it might be rather than the obvious “has” rolled over.
Hence my request for you to explain why you misstated “may be” for “has already”. It is a legitimate request and a critical distinction.