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Wage Growth Advances But Remains Top-Heavy

Nov. 08, 2016 11:54 AM ETDIA, SPY, QQQ, IWM
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Douglas Adams


  • Wage growth for non-farm private sector workers through the end of October increased at a 2.82% clip--the strongest showing since the end of 2009.
  • Wage growth for non-supervisory workers posted wage growth at a more modest 2.40% for the month at a 16% pay differential.
  • Labor participation ratio remains glued below 63% since November 2013 at levels last seen in 1977-78, signaling an outsized uptick in corporate investment is not on the immediate horizon.

Admittedly, there was little outwardly spectacular about the October jobs report: The headline job creation total was largely on target with consensus estimates creating 142,000 private and 19,000 public sector jobs for a total of 161,000 jobs for the month. Upward revisions for both September and August added 44,000 jobs to the year-to-date total for an average monthly job count of 181,000 through October, slightly less than the 219,000 pace through the first 10 months of 2015 but nonetheless a strong and widely based display of the economy's continuing ability to create jobs.

Digging a little deeper into the report however we find that the labor participation and employment to population ratios were largely unchanged for the month at 62.8% and 59.7% respectively. Outside of March of this year when the former ratio managed a post of 63%, the labor participation rate has almost been glued below 63% since November 2013 and has remained well below the pre-December 2007 level of 66%, signaling an almost cross-the board consensus view that an outsized uptick in demand for goods and services in the greater economy requiring major changes to current labor mixes-not to mention forward investment in plant, structures, equipment or inventories-is not on the immediate horizon. As a consequence, year-over-year corporate earnings have declined for six consecutive quarters through the end of the 2nd quarter, a streak that started back to the 1st quarter of 2015. It was only in the 3rd quarter that the corporate earnings drought was finally halted with a 2.7% increase year-over-year. Earnings will likely remain under pressure for the foreseeable future given the current demand and low interest rate environment. Meanwhile, the unemployment rate nudged down slightly to 4.9% for the month as the number of unemployed dropped by 152,000 to 7.787 million-little changed on the month but

This article was written by

Douglas Adams profile picture
Douglas Adams specializes in macro-economic research and turning theory into practical portfolio applications for clients over the past seventeen years. Mr. Adams recently formed Charybdis Investments International based in High Falls, New York where he is the managing director of a fee-only investment advisory practice with clients throughout the United States. As an author, Mr. Adams has commented widely on a diverse array of topics from Brexit to monetary policy to forex to labor productivity and wage growth. He holds an undergraduate degree from the University of California, a master’s degree from the University of Washington and an MBA in finance from Syracuse University.

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