Tuesday, August 11, 2015

Former Federal Reserve Chief: Extremely Strong and Growing Labor Market?

For years now, every time there is a positive employment report, the President and several high profile economists continue to echo what they had said the month before; "the" job market is strong.  Recently, the former Federal Reserve Chairman, Alan Greenspan, went so far as to say that it was "extremely" strong.  I cringe every time I hear that employment is strong because it isn't.

An economy isn't strong when the U-6 report of "Alternative Measures" still sits at 10.4%.  For those who don't know, the U-6 is a measure of real unemployment that includes the official 5.3% out of work and looking for work; along with those that are  underutilized or, in other words, working in jobs that are below their experience and education levels.  It also includes persons unable to find a full-time position that are forced to work part time.  Finally, it includes those who could work, but who have, in frustration, stopped looking.  If employment was "extremely" strong, the U-6 would be at 7% as it was in several months in the year 2000.

Then, there's the issue of wages.  You can't have a strong jobs market when real wages (wages adjusted for inflation) are languishing.  In 2011, they finally stabilized following the 8% drop due to the recession.  In that year the real median household income was $51,842.  By 2013, it was $51,939. In 2014, the wage growth was just 4-tenths of a percent; meaning that the real median income -- when it is officially reported later this year -- will be just $52,146.  Thus, after 4 years, real wages have only increased by 6-tenths of one percent. In other words, for every $10,000 worth of earnings in 2011, that same income level at the end of 2014 would be just $60 higher at $10,060.

If we continue to grow wages at these rates, it will literally take another 20+ years to get back to the pre-recession median household wage of $56,436.

Lastly, real wages, as reported by the Bureau of Labor Statistics, actually fell 4-tenths of a percent in June 2015.  A doubling of the loss that was seen in May.

Really? An extremely strong labor market?   


Greenspan: Extremely strong and growing labor market: http://video.cnbc.com/gallery/?video=3000401737

U-6 Unemployment Rate 2000 - 2015: http://portalseven.com/employment/unemployment_rate_u6.jsp

Bureau Labor Statistics: July Employment Report: http://www.bls.gov/news.release/pdf/empsit.pdf

Interactive Chart: Real Median Household Income By Year: https://research.stlouisfed.org/fred2/series/MEHOINUSA672N

Average Real Hourly Wage Growth in 2014 Was No Better Than 2013: http://www.epi.org/blog/average-real-hourly-wage-growth-in-2014-was-no-better-than-2013/

Real Earnings for the Year Ending June 2015: http://www.bls.gov/news.release/pdf/realer.pdf

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