It was a Goldilocks employment report for December: Not too hot, not too cold, no new implications for Federal Reserve policy or the direction of stocks.
But economists are concerned about wages, which would normally be growing more in an economy with super-low unemployment. Year-over-year wage growth in December was just 2.9%, down from 3.1% the month before and a peak of 3.4% last February. As more people enter the labor force and workers get harder to find, wages should go up as companies pay more to lure the people they need. But the trend has been the other direction for the past nine months.
“The truly disappointing wage growth trends of the past few months continued in December,” economist Nick Bunker of placement firm Indeed wrote in a research note. “The fact that a variety of wage growth metrics show wage growth not picking up with 3.5% unemployment should be a topic of discussion.”
Overall, employers added 145,000 new jobs in December, a bit less than expected but enough to keep the economy humming. The manufacturing sector lost 12,000 jobs, continuing a rocky performance that may reflect rising costs associated with President Trump’s new tariffs on imports. But that could be partly due to measurement anomalies likely to be ironed out in coming months.
It’s unclear if slower wage growth signals a weakening economy or is a false alarm. In general, the pace of job growth has slowed in recent years and economists expect it to slow further in 2020. This week’s Trump-o-meter reads MEDIOCRE, the third-highest rating.
Despite the relatively strong economy, economists have been puzzled for some time about the lack of robust wage growth and what is usually a corresponding increase in inflation. Neither has occurred 11 years into a business-cycle expansion that’s now the longest on record. Modest wage growth may have an upside, since it keeps labor costs down and makes companies more profitable. A lid on wages may also moderate spending and keep bubbles from forming.
But with inflation at 2%, wage growth of around 3% means the typical family is barely staying ahead of inflation. Health care and higher education costs are rising faster than overall inflation, straining many family budgets. Weak wage growth may reveal that while there are plenty of jobs, many of them are low-paying.
‘Low wage’ jobs
New research by the Brookings Institution found that 44% of all U.S. workers—about 53 million Americans—work in “low wage” jobs with median pay of just $10.22 per hour. That’s about $18,000 per year. While young people often work in low-wage jobs because they’re just starting out, 64% or the low-wage workers Brookings identified are of the prime working age of 25 to 54. They represent millions of families struggling to get ahead, and often falling behind.
The state of the economy will obviously help determine whether Trump gets re-elected in November, but solid macroeconomic numbers may mask widespread financial stress. A Democrat such as Joe Biden or Elizabeth Warren isn’t likely to beat Trump by arguing he’s been bad for the economy, which is clearly not true. But they could tap into the frustration of millions who feel they should be getting ahead, but aren’t. Trump himself did this in 2016, vowing, as everybody knows, to “make America great again.” If wages are the measure, he hasn’t.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. Confidential tip line: firstname.lastname@example.org. Encrypted communication available. Click here to get Rick’s stories by email.