When the government’s monthly jobs report comes out, analysts focus mostly on, well, jobs. But it may be time to start focusing on another element of the report that hasn’t been doing as well as the raw employment number: incomes.
Employers have added nearly 1.1 million jobs so far in 2014, averaging a respectable 213,000 per month through May. Analysts expect the tally to rise by another 215,000 or so when the government releases the June numbers on Thursday. All those new jobs have pushed the unemployment rate down from 6.7% to 6.3% so far this year, a welcome bright spot in the so-called recovery.
But other numbers suggest many of those new jobs involve part-time or low-wage work, which is why an improving job market isn’t generating as much new consumer spending as it ought to. “Just because more people are working doesn’t mean conditions overall are improving that much,” says Jeffrey Rosen, chief economist at research firm Briefing.com. “What we haven’t seen is a large pickup in hours and in actual earning levels.”
Ordinary families falling behind
As with other types of data, aggregate numbers on income don’t necessarily reflect the struggles ordinary families are dealing with. Economists often cite aggregate personal income figures as a gauge of consumers’ well-being. By that measure, things are improving — the latest numbers show personal income up 3.5% from year-ago levels.
When adjusted for inflation, taxes, government transfer payments and other factors, disposable income per person is rising by about 1.2%, which means people overall are staying a bit ahead of inflation. But the long-term average is nearly 3%, yet another indication that the whole economy seems to be stuck in low gear. Plus, those numbers might be skewed if high earners are getting big raises while others are stuck in place, which some economists think is happening.
Meanwhile, wage, salary and workweek data published along with the monthly job numbers show a somewhat different story. Average hourly earnings for all employees have risen just 2.1% during the last year, which is roughly the same as inflation. And the average workweek, at 34.5 hours, is the same as it was a year ago. So those numbers show the typical worker isn’t getting ahead at all. Families that are more sensitive to gas and food prices, which have been rising more than average inflation, are more than likely falling behind.
It’s good news that wages have ticked up during the past year, as 2.4 million new workers started earning a paycheck. That has pushed total earnings for all workers up by about 4.2% during the past 12 months, according to calculations by Briefing.com. But that also fails to capture the distribution of income or explain whether the typical family is enjoying more financial stability.
Other numbers suggest the middle class remains under stress. Median household income today is $53,145, according to Sentier Research, which is about 4% lower than it was before the last recession began at the end of 2007. By that measure, incomes have improved a bit from the low point in 2011, but it is still likely to be years before household income regains lost ground. And median household income better reflects the lot of ordinary families, because it accounts for all the workers in a family, including those who may have lost jobs and ended up without a paycheck. It also eliminates distortions that might be caused by a small number of high-income workers pulling up an average.
Various types of data obviously show different things, but economists generally agree that weak job growth and flatlining incomes largely explain a subpar recovery. Other factors contribute: Fewer Americans are taking on debt to fuel spending, for instance, and the typical family still hasn’t regained a lot of the wealth lost in the housing bust. “Unless wages accelerate or consumers decide to dip further into already meager savings, spending is likely to remain subdued,” Ross Koesterich, global chief investment strategist for BlackRock, wrote recently.
More jobs must materialize before typical workers see meaningful hikes in pay, since most employers can still tap a large pool of relatively cheap labor. When workers become a bit more scarce, that’s when pay is likely to rise in earnest. Until then, a steady increase in jobs is likely to be the best news on the economy we’re likely to get. If it keeps up.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.
