Not So Fast: Here's The Full Story About Those "Surging Hourly Earnings"

With attention firmly fixated on today's wage print, economists - not to mention the Trump administration - were delighted to see a 2.9% spike in average hourly earnings, the biggest jump since June 2009, suggesting inflation is about to make a roaring comeback, and prompted the likes of Bill Gross to predict that the 10Y would hit 3.0% in the very near future.

Well, not so fast, because as a closer look at the data reveals, the only reason why average hourly earnings rose, is because the total weekly hours worked posted a relatively steep decline, dropping from 34.5 in December to 34.3 in January, a 2.9% drop from the 34.4 last January.

Meanwhile, average weekly earnings actually declined from December, dropping from $919.43 to $917.18 from December to January...

... which in turn meant no breakout in the average weekly earnings, which rose a far more modest 2.6%, and in fact declined from recent prints above 3.0%.

Finally, looking at the broadest segment of the labor force, the production and non-supervisory workers, average hourly earnings rose only 2.4%, indicating that the bulk of wage gains once again accrued to managers and supervisors.

So before dumping that 10Y or buying the dollar on the surge in "hourly" wages, maybe a question worth asking first is why did the average workweek decline by 2.9%, because if it had kept constantly, average hourly earnings would have barely increased, and the market's reaction would be vastly different.


Harry Lightning Lumberjack Fri, 02/02/2018 - 09:56 Permalink

January Employment reports are filled with seasonal factors to account for the layoffs of temporary help hired during the Christmas shopping season. That explains a large chunk of these anomalies, like why the average workweek dropped. These seasonal factors actually work themselves out over the course of the year so as to represent a very good abstract picture of what's going on in hiring. 

The important part of the picture to watch is the trend for the last several years, and there it is quite clear that as the unemployment rate has gone lower, wages have been rising. By how much is not as material as knowing this is occurring. The rising stock market, the rising yield environment, and the ISM reports in which businesses state its difficult to find appropriate workers all reflect these trends, as do the rise in commodity prices. The Fed is allowing it to occur with a bit of benign neglect because it is way overdue. The only way the economy can maintain growth over 3% annually is if employees receive wage increases at least at that rate of increase. 

Finally the economy is humming at its optimal speed and the correct results are being obtained. Rising wages lead to higher consumption which leads to more production, which is what GDP measures. The Fed should grant this economy some wide leeway so that incomes become sufficient to support the economy in a sustainable way, which would allow the government to reduce its consumption, resulting in a drop in the fiscal budget deficit. 3-5% inflation would be a welcome sight after so many years of near deflation, household finances finally would have a chance to grow again instead of constantly having to borrow to maintain standards of living. The financial world might not like it too much, as a 5% inflation rate would drop corporate profits. Stock prices would reflect that earnings reduction, and the cost of borrowing would return to more normal levels. This would be the cost of sustainable long term growth in the US economy, which in the long run is the best outcome. There is plenty of time to keep inflation under control, now is the time to allow it to rise for the longer term benefit of the economy.

In reply to by Lumberjack

fbazzrea Harry Lightning Fri, 02/02/2018 - 10:09 Permalink

3-5% inflation would be a welcome sight after so many years of near deflation, household finances finally would have a chance to grow again instead of constantly having to borrow to maintain standards of living. 

on what basis do you assume wage growth would be greater than inflation? inflation already exceeds 3% everywhere in America except USG data. if "they" allow wages to increase, they decrease the workweek. there can be no recompense to workers until the Fed is relegated to the history books. 

an overt policy of inflation would publicly undermine the value of the USD. the Fed will NEVER allow that to happen. it would be their swan song. repaid trillions in worthless paper??? i don't think that dog will hunt, so to speak.

as it is, they play an evil game of charades, destroying the middle-class wage earners for the "good of the nation" which just so happens to enrich themselves. go figure.


In reply to by Harry Lightning

MK13 Fri, 02/02/2018 - 09:14 Permalink

Jan to December comparison is difficult, end of holiday sales.

With tighter labor conditions, tax reform, and some first hand knowledge, the earning per hour trend is up.

Blano Fri, 02/02/2018 - 09:15 Permalink


Since your last change here, I've been unable to post a comment or reply to a comment from my phone. Can y'all fix this?

Also, could you put the # of comments max back to 300? Or was this done for more clicks?


Kickaha Fri, 02/02/2018 - 09:28 Permalink

Minimum wage was increased in 18 states effective Jan. 1.  Do ya think that just might have had a statistical impact on average hourly wages nationwide?

Phillyguy Fri, 02/02/2018 - 09:29 Permalink

The average working people earns less today than they did 3 decades ago. Trumps policies are directed at increasing corporate profits and cutting wages.

P.K.Snosage Fri, 02/02/2018 - 09:34 Permalink

"The greatest imponderable of all is why we have still not hit peak-bartenders.  This fact alone, makes any analysis of the data prone to strong bias."

ipso_facto Fri, 02/02/2018 - 10:29 Permalink

The 'numbers' will always be tweaked when needed.  You'll still be hearing 'optimistic economic news' when you're reduced to living in a discarded refrigerator box.

MarcusAurelius Fri, 02/02/2018 - 11:11 Permalink

Useless numbers even if they were true. Say you are earning 50K a year. Your wages jump 2.9%. How will that make your life any better? I mean hey don't spend it all in one place folks, it's party time. Wages have stagnated for essentially 20 years while the cost of living keeps rising. Yep a 2.9% uptick is the cats ass for sure. 

DanielD Fri, 02/02/2018 - 13:19 Permalink

If you care about he the truth, go to Youtube and look up  a channel called Mike Malloy


If not, eat shit and die, you useless cockroach