Hey Fed, Slow Down. Unemployment Is Down But So Are Wages

Today’s Surprise: Unemployment Is Down But So Are Wages

Not sure what the Fed will make of today’s jobs report. My guess is that it will likely double down and keep gunning for a recession.

Outside of impacting financial markets, the Federal Reserve’s interest-rate hiking campaign is focused on suppressing job growth, as James K. Galbraith points out. Though the Fed’s transmission time is about 18 months, one glimpse of whether the Fed will remain concerned about the labor market came this morning with the release of the US employment report for September.

Before today’s report, economists expected the unemployment rate to hold steady at 3.7% and for average hourly earnings growth to fall slightly to 5.1% from 5.2% the month before.

Instead, unemployment fell unexpectedly to 3.5%. The only sign of softening was that wages grew slightly less than predicted, up 5.0% from a year earlier. And here is a warning sign: Owen Davis from our research lab at The New School noted that temporary help services added 27,000 jobs, continuing growth from previous months. This growth is a sign we are not heading into a recession just yet.

The low unemployment rate makes some sense. Lydia DePillis at the New York Times
NYT
reported that Tuesday’s JOLTS data, also from the Labor Department, showed some weakening — about 10.1 million positions were open at the end of the summer, down from 11.2 million in July. Still, there were 1.7 unemployed workers for each available job, around the highest proportion on record.

Take That Job and Shove It

DePillis also focused on one of my favorite numbers, the quits rate — the number of people voluntarily leaving their jobs divided by total employment. At a bit over 3%, it was bit below what it was at the end of 2021, which was the highest reading since the number started to be collected.

These two numbers — the one from JOLTS and this one from the monthly employment report— give me one measure of labor power that last month I reported was one of the few that showed workers have some power. Michael Hiltzik from the LA Times concurred.

The share of the unemployed who left their jobs was 15.2% of the unemployed in August 2022, up from 10.6% of the unemployed in August 2021. In September 2022 the percentage of the unemployed who were job leavers was even higher at 15.9%. This points to a bit of worker power.

I pair the quits rate with today’s rate to get a sense of whether workers are feisty enough to think they can leave a job presumably for better opportunities. I think it takes nerve to leave a job without another one or two waiting.

Workers Are Not Pushing Up Prices

There is little evidence for the Fed’s concern that workers’ inflation expectations can push wages and prices. Earnings growth did not exceed inflation in 7 industries out of 10. The last reported increase in inflation was 0.1 percent and the average earnings increased by less than that. The biggest increases were in finance and information services. The losers were workers in Education and health services who experienced an actual decease in wages not even adjusted for inflation.

Mixed Picture for Older Workers

Lastly, I like to keep an eye on what is happening to older workers. The unemployment rate for older men and women fell fast from 2.7% to 2.4%, which is about as close to full employment as you can get.

To compare how older workers are faring, Siavash Radpour from our New School economic policy research group does not measure the share of workers by age since more older workers mostly shows population aging, not employment trends. But the millions of older workers in the labor market affect the entire market. In August 2022, 37.206 million people over 55 were employed and in September, older workers’ employment went up to 37.561 million, while employment levels for people 25 to 54 went down from 102,053,000 in August 2022 to 102,037,000 in September. The labor market is aging.

Are Workers Coming Back?

The employment to population numbers – e-pop – tell us what everyone wants to know. Are workers coming back? Workers ages 25 to 54 are holding steady, their employment rates went down slightly from 80.3% in August to 80.2% in September.

And the rates for men ages 25 to 54 are up; but women’s employment participation fell more, dragging down the employment rates in this younger age group.

For older workers ages 55 and over, trends are good for men and not so great for older women. The employment to population ratio for those 55 and over increased from 37.6% in August to 37.9% in September. But the increase was all driven by men while women’s e-pop rate did not change.

From a big picture perspective, older worker labor supply hasn’t been recovering as much as we hoped, even among the “early retirement” age group of 55-64. At the beginning of the summer it looked like the labor force participation rate for those ages 55-64 was going to retake is pre-pandemic highs. But as Owen Davis notes, “the 55-64 year olds are not fully back.”

I think employers not accommodating the millions of workers with long Covid is an issue and makes the official unemployment rate look too optimistic, especially for older workers.

What does this all say for worker power and the Fed’s insistence on weakening the labor market? Anemic wage growth shows the market is not overheated. A recession is not called for and employers can do more to entice more of the population to work for decent pay.