February Jobs, Just Enough Growth?

by: Max Fraad Wolff


February Jobs Report: A look at the BLS Data with contextual awareness.

Productivity: Productivity keeps rising, as does output, with wages stagnant to down. The downward pressure on unit labor costs is missing effective demand.

Wages: The bottom 80% of households, by income, live, die, buy, save on wage changes. Absent sustained wage growth, we will not have a robust recovery.

Demographics: It has been tough for the young. Greater wage losses, higher debts and lower labor force participation among younger Americans is a huge macro issue.

In February 2014, employment increased by a greater than expected 175,000 net new jobs. The February numbers came in with 45,000 more new jobs than expected, and we saw upward revisions of 25,000 new jobs to the December 2013 and January 2014 numbers. The unemployment rate ticked up from 6.6% to 6.7% in the U3 broad measure. The average workweek was unchanged in February and wages continue to display no, or very low growth. This continues to be the buried lead in these numbers.

Over the last 3 months, we saw a volatile jobs growth pattern with an average monthly gain of 129,000 jobs. The 1-year monthly average growth was 189,000. We are running over 30% below the recent average, although the February number was strong. We have seen a marked deceleration in our "just enough" growth story over what is proving to be a long cold winter. We are not double dipping and the US is receiving an upgrade by global comparison as international capital rotates here. Emerging markets have been showing growth fatigue and enhanced political instability. This is causing global wealth to rotate back to the developed world, the US in particular.

The productivity story continues to be good for profits and cost controls, but bad for wages, hiring and short-term macro growth. As an hour of labor produces more, fewer workers and hours are required to produce a given amount of goods, services. Unit labor costs measure how much wages rise against increases in output.

Unit labor costs fell again in Q4 2013 and across 2013. The productivity report highlights the subdued pressure on companies to add to jobs. The labor market weakness has broken the link between rising productivity of labor and rising wages. Productivity and Costs, Fourth quarter and Annual 2013 makes this pattern clear.

New household formation, savings rates and wealth accumulation are running at powerfully sub-average rates for younger Americans. Lack of wage growth, difficulties in home price stability and periods of unemployment are creating an emerging professional class that is poorer and less secure than any since the Great Depression. The most recent recession has fundamentally changed the wage landscape, particularly for the young. This is not widely factored in, and is ignored at great peril to models and assumptions. The hunt for freebies, discounts, and cost shortcuts is not just a hobby for those under 30, it is a necessity. Low wages, limited benefits and savings are creating circumstances that young professionals are in no position to earn their way out of. There are plenty of middle class supported basic industries, landlines and cable TV businesses, waiting to be cut by young folks falling victim to rising insecurity and driven to hunt for freebies and freemium services.

The NY Fed's Quarterly Report on Household Debt and Credit reveals the ongoing crisis for the young. The Great Recession, and our present "recovery" have been very hard on younger Americans. Student loan debts now stand at $1.08 trillion. The delinquency and default rate on these loans stands at 12%. Student loan delinquency and default rates are higher than credit cards, mortgages, auto loans and home equity credit lines. Lower earnings, higher debts and lower job stability for the future prime earning professional class will have profound impacts. The first waves are washing up into corporate earnings today. More is to come.

Also from the NY Fed, Are Recent College Grads Finding Good Jobs makes clear one of the truly disturbing legacies of recent economic turmoil and policy response. It is clear that has been a material increase in the difficulty of getting college degree appropriate jobs and compensation. This, coupled with the large student debt burden, is reducing the prosperity and vitality of the future middle and professional class in the US. This is a very negative and now enduring trend of the recession that is reducing both present growth and affluence and macroeconomic vitality.

It is clear that demand for labor and the bargaining strength of wage earners has been structurally weakened across the last decade. This is having a relatively dramatic effect on income distribution and younger households. It is time to factor this structural shift into assumptions about household formation and spending patterns. The stubborn lack of wage growth and difficulties of the young will have profound effects on housing demand, retail demand and long-term macro growth.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.