Why does the jobs economy not feel strong even though we've had years of huge month-to-month jobs growth numbers?
Yesterday, the reading came in with job creation of 292,000 in December, which beat estimates of approximately 200,000. The headline unemployment rate was steady at 5%. Average hourly earnings were flat at 0.0% vs. estimates of an increase of 0.2%. The report had a couple of caveats that left me feeling uncomfortable. The first thing that stood out was the 34,000 temporary jobs and 45,000 Construction jobs. Also, the average hourly work week for manufacturing which edge down 0.1 to 40.6 hours and average work week for production and non-supervisory employees was unchanged at 33.7 hours. Even with the large job creation, the U6 measure of unemployment remained unchanged at 9.9% and the labor participation rate remained unchanged at approximately 62%.
Let's look at pre- and post-crisis wage growth. In January of 2000 the average hourly wage was $13.75; in December of 2007 it was $17.70. In January of 2008 it was $17.75; and December of 2015 it was $21.22. Pre-crisis there was wage growth of 28.73% and post crisis wage growth had slowed to 19.55%. Interesting.
Going back even further, January of 1993, $10.93 and December of 1999, $13.70 -- wage growth of 25.34%. January 1986 to December 1992 $8.85 to $10.64, 20.23%. Interesting. 2008 to 2015 has been the slowest seven-year span of wage growth in nearly 30 years. If we are creating all these jobs, why is that we have such sub-standard wage growth?
Digging into historical Bureau of Labor Statistics numbers, guess which year had the greatest job creation since 1980: 1984. Creation was 3,880,000. In December of 1984 the total employment population was 106,049,000. In 2015, we created approximately 2,665,000 and the employment population was just shy of 150,000,000. What does this mean? In 1984, job creation was about 3.6% of the working population, and in 2015 job creation was 1.7% of working population.
This could solve the mystery of the labor participation rate. Labor participation has been declining because as the population has been increasing the jobs being created have not been able to keep up. Not only has wage growth been at a 30-year-low, but job creation has been lackluster as well.
In the 1980's, job growth averaged 1.8 million per year and the population was 117 million by the end of 1989, or 1.54% of population. The 1990's we averaged job creation of 2.1 million per year and a population of 135 million by the end of 1999, or 1.55%. In the 2000's we averaged 109,000 and a population 137 million by the end of 2009, due to the two recessions of 2001 and 2008. In the 2010s, we have averaged job creation of 2.2 million per year, while the population has grown to 150 million or 1.46%. Job growth needs to average 2.3 million per year, just to get us back to 1.55% of the employment population. We have no room left to spare. If there is any slow-down in job creation, the labor participation rate we will continue to fall as long as the working population continues to grow.
The job market is certainly not as rosy as the headlines would make it. We have jobs growing at a slower rate than it seems when compared to the working population, while producing wages that have grown at the slowest pace in nearly 30 years. So, if it feels like the economy and the job market are not strong, it's because they aren't.
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