Employment Soft, Wages Up

Interesting employment news.  The headline is weak job gains.  The economy added 138,000 jobs, versus expectations and a recent average of about 200,000 jobs per month.  This move was "blippish" rather than indicating a fundamental change.  Most of the weakness was in retail trade, where sales have been strong.  Several analysts wonder about the adequacy of the seasonal adjustment that includes Easter.


I don’t think we’re in the beginning of a slowdown here.  Wage news was interesting.  Average hourly earnings rose more than previously.  Remember that this reflects the mix of jobs as well as the wages.  See example below.  The Employment Cost Index, in contrast, adjusts for changes in the mix of jobs and wage levels, measuring strictly wage gains independent of mix.  Look at how they compare:


This tells me that the big change isn’t wage rates per se, but the mix of jobs.  Employers are hiring more high-wage workers.  Sounds like good news, and does not sound like an inflation problem.

(Example: Last year 2 people worked at $10 per hour, and each got a 10% pay raise this year.  This year a third worker was hired, starting at $8 an hour.  The Employment Cost Index would show a 10% increase, because it calculates the average raise for the existing jobs.  Average Hourly Earnings is unchanged in this example.  Last year AHE was $10.  This year we average the following wages:  $11, $11, $8.  The average is $10. So wages appear stagnant.)

Business Strategy Implication: I’d like to say that today’s news confirms my prediction that labor markets would tighten, but instead the news says that businesses are looking for more talented workers.  I still think that companies should anticipate a labor squeeze and start thinking about employee retention programs.  I have information about resources for doing that on my website.