Averages can be very misleading. Bill Gates walks into a bar so, on average, everyone is now a multimillionaire. That's why we should focus on the correct average, depending on the situation - in the case of the bar it should be the median, not the mean.
Likewise with employment cost statistics, though admittedly it's a more complex situation. Last Friday markets were cheered because average hourly earnings of all private employees grew only by 4.6%, lower than the expected 5.0% (see chart below). The Fed is supposed to take this into consideration when it decides on its rate policy going forward.
But, is the Gates/bar analogy important here? It appears so - look at the next chart.
Employees in Professional and Information industries are amongst the most highly paid (large Green and small Blue bubbles on the very left) and they were precisely the ones that got laid off, therefore skewing the averages lower. In addition, the Leisure and Hospitality (Red bubble) plus the Education and Health sectors (Purple bubble) have amongst the lowest paid employees and added the most people, further depressing average earnings. Those are means, not medians.
In the bar analogy, a bunch of bankers and IT engineers walked out and lots of housemaids and hospital attendants walked in... on average, everyone just became poorer. But does this say anything about wage inflation? Nope, nothing at all.
For a much better understanding of wage pressures, the Atlanta Fed publishes a median wage growth tracker using microdata from the Census Bureau - see chart below. Yup, as expected it is much higher. Wall Street is cheering, but the Fed itself knows better.
Great post. Just want to note that according to the BLS, real weekly earnings declined 3% yoy.
ReplyDeleteBy H.
ReplyDeleteThanks A. That kind of real income loss cannot but put upward pressure on wage demands/strikes and affect corporate earnings.
On a related issue, job switchers’ wages are rising at 7.7% while job stayers” only by 5.5%. This is the widest gap ever, according to the Atlanta Fed, and with JOLTS open positions numbers so high, the effective labor cost for businesses out there is rising fast.