Production and nonsupervisory employees had biggest year-over-year wage gains since 1982, but they too were outrun by inflation.
By Wolf Richter for WOLF STREET.
The tight labor market and soaring inflation have been cited by various Fed officials as the top reasons for rate hikes starting on March 16. Even the lowest lowball measure that the Fed uses for its inflation target has already totally nailed the inflation requirement. Today’s jobs report nailed the other part.
Both employers and households reported large gains in people who were working in February. The two measures differ: The reports from employers includes only their payrolls. The reports from households include not only W-2 workers but also the self-employed and people starting their own businesses, and there has been a huge wave of entrepreneurs trying to start their own thing.
In addition, the labor force grew in February, indicating that more people have rejoined the rat race, for whatever reason, but still not enough, and the labor force remains below where it was before the pandemic, and massively below trend, and so the “labor shortages” persist – what Powell has called the tightest labor market in history.
Employers added 678,000 people to their payrolls in February, according to the Bureau of Labor Statistics today, bringing the total number of employees to 150.4 million. Over the past three months, employers added 1.75 million employees (purple line).
The big constraint to more hiring still is the “labor shortage” – meaning that people are reluctant to rejoin the workforce, and if they do, they’re demanding higher pay and better working conditions.
Households reported that the number of working people, including the self-employed and entrepreneurs, jumped by 548,000 in February, and by 2.4 million over the past three months, bringing the total to 157.7 million workers, including the self-employed (red line).
The labor force and “labor shortages.”
The number of people who were either already working or who were actively looking for a job in the four weeks prior to the survey – that’s the “labor force” – jumped by 304,000 in February and by 1.86 million over the past three months to 164.0 million.
This left the labor force down by only 457,000 from February 2020. But it remains far below trend:
The “labor shortages” show up in the job openings, which are in the astronomical zone, with nearly 11 million job openings, up by 62% from two years ago, and have been in that range since mid-2021, according to the separate JOLTS data from the Bureau of Labor Statistics. These job openings are not based on online job postings, but on what companies and government entities said their hiring needs were:
The average hourly earnings, after a massive jump in January, just edged up in February to $31.58. Compared to a year ago, average hourly earnings jumped by 5.1%. This is a large increase beyond of the distortions during the pandemic when millions of low-wage workers were laid off while office workers switched to working from home, thereby inflating the average hourly earnings.
The gains in earnings were larger in production and nonsupervisory jobs, where average hourly earnings rose by 8 cents in February to $26.94 per hour, up by 6.7% from a year ago. Beyond the distortions early in the pandemic, the gains in January and February (both 6.7%) were the highest since 1982:
But neither that large overall average gain of 5.1% in hourly earnings, nor the even larger 6.7% gain for production and nonsupervisory employees was enough to overcome 7.5% CPI inflation, showing once again how inflation demolishes the purchasing power of labor.
If hot inflation outruns earnings increases to this large extent for long enough, consumer spending will take a hit and economic growth will take a hit. This doesn’t play out over the next month or two, but over years. The mood of consumers has already soured due to this rampant inflation.
But for now, consumers are still making heroic efforts to spend, and they outspent inflation, even as their income increases got eaten up, plus some, by this rampant inflation, and worse, as “real” (inflation adjusted) per-capita disposable income dropped for the sixth month in a row.
For an economy that relies so much on consumers to spend, that kind of decline in real incomes will derail the economy. So bringing down inflation has moved to the top of the Fed’s priority. Powell has confirmed that. The Fed is light years behind the curve, but the data in this report gives it a lot of ammo for rate hikes going forward.
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