Jobs report: ‘The wage growth numbers are a concern,’ St. Louis Fed VP explains

William Rodgers, Federal Reserve Bank of St. Louis Institute for Economic Equity Vice President and Director, joins Yahoo Finance Live to discuss the December jobs report, slowing job growth, developing productivity growth and labor force participation, recovery by sector, and wages.

Video Transcript

ZACK GUZMAN: But first, of course, the big story today, we start with the latest data out on the labor front, as the December jobs report showed continuing higher to wrap up the year, as we saw the unemployment rate, as I said, dropped to 3.9%, the lowest since February 2019. Overall, the numbers came in softer than estimated.

A little bit on the headline number, though, there was some seasonal adjustments there perhaps to blame for that, 199,000 jobs versus the 450,000 expected and a revised 249,000 jobs added in November. Average hourly earnings also important to highlight there. Month over month, rising 0.6% versus the 0.4% expected and a revised 0.4% in November. Of course, we've been watching not just the Fed but also economists seeing wages rise and inflation concerns continue to persist here in 2022.

For more on all of that, though, the numbers we got, want to kick things off in the noon hour with our first guest here, William Rodgers, Federal Reserve Bank of St. Louis Institute for Economic Equity vice president and director. And Bill, good to see you again here. Happy new year to you. I mean, when we dig into the numbers, obviously, there's a lot to discuss. Beyond it, you know, if we're talking equity here, interesting to see the unemployment rate for Black Americans actually not improve. It actually got worse by more than half a percent. So talk to me about what you saw in the report and where you think the Fed's at.

WILLIAM RODGERS: Yeah, I think it's a good report, especially if you put a little more weight on the household survey, which is where the unemployment rate estimate comes from. You know, that ticking down seems to tick down because people were getting jobs. People were coming into the labor force and being successful with getting a job. And that's very important.

The other thing, too, that I think also you have to put a positive sort of view on this report is that there were upward adjustments in previous months that would get you, I think, around 140,000 additional jobs. So, you know, all in all, the quantity side of the report in terms of jobs continues to show an economy that's recovering. Yes, we still have a ways to go compared to where we were at the prior to the beginning of the pandemic.

But overall, it's positive. The wage growth numbers are a concern. Particularly, they're sizable, but they're also less than what the cost of living is doing in terms of the consumer price index. So that's a concern. But, you know, some people have said, well, why are we seeing this disconnect?

And, you know, the two surveys, the household survey and the payroll survey are different. BLS, the Bureau of Labor statistics does have an adjusted series where they basically remove what we might call additional workers, or they connect the employment concept across the surveys. And when they do that, you get an adjusted household survey that looks more like the payroll numbers. But all in all, it was, you know, it's a good report. You know, we do have some headwinds going forward, obviously, omicron because that started to tick up after this job-- after the survey was being done.

AKIKO FUJITA: Though we heard from the president a short time ago talk about his approach to improving the economy, saying, you know, this is a fundamentally different approach. This is about lifting all boats, if you will. Women, that has been a big weak spot. And we've talked about this a lot, but we saw labor-- the labor force participation rate among women reached the highest levels we've seen during the pandemic. To what extent can we see further improvements without the additional legislation the president's highlighted that allow for child care and the additional help that this pandemic has shown that a lot of households are seeking?

WILLIAM RODGERS: Yeah, I think if you wanted to move forward without additional relief and recovery, but also reimagination. Some of the ideas that are being talked about represent a real reimagination, a real reset of priorities, really a reset on how we can make American workers productive. So my sense is, from my analysis, from our staff's analysis and our focus on equity, the kinds of things that the president is talking about, I can't get into the specifics, but the kinds of things he's talking about are needed because they will help to enhance productivity, not of just women, but also other workers in the family. And productivity growth is one of the key ingredients of economic growth.

Now if those ideas don't come to fruition in the near term, we could get back to higher participation rates would have to be really, again, putting our hands down and really addressing and ending the public health crisis that has emerged out of COVID because that is really, as we're seeing now with omicron, sort of surging. It's having an impact on those very folks you just mentioned about women and parents. And even I-- we've even found that seemed to have had an impact on older women, that some of those folks who have retired-- claiming they're retired are women between 65 and 74 years of age who have left the labor force, possibly to help out with providing child care to their adult children's kids.

ZACK GUZMAN: And Bill, the other thing, too, I mean, when we're talking about this kind of a lagging, this big surge, and omicron obviously a different picture for the economy on the other side of this jobs report, the place we're living in right now. And you did see leisure and hospitality jobs come down a bit from what we saw back in October, that big surge of 200,000-- more than 200,000 jobs back then, just 53,000 in this latest report. And I assume some of those might actually be shown to come down in the next jobs report we get because of omicron.

So I mean, when you think about how all of that ties back to maybe some of this recovery being felt differently for whites, Blacks, Hispanics in the country, as we saw a lot of those minorities hit in the leisure and hospitality sector, I mean, what do you make of, I guess, how some of Americans are still faring better than the rest of the country here and how long that's going to persist?

WILLIAM RODGERS: Yeah, what you've described has been called a K-style or K-shaped recovery. In some earlier work that I've done when I was back at the College of William and Mary doing work there in those communities-- in that community, we called it the two realities economy. And what we're experiencing in those two realities are these K-shaped types of recoveries, is basically what I attribute we have had this sort of decades-- several decades, where we've slowed down our investments in what the United Nations calls human priorities.

And human priority investments are investments in education and training, human capital we call it, but also most importantly, social capital. And that's investing in whether it be social safety nets, Social Security, unemployment insurance. But it's also it's investing at the local level, investing in communities, community centers, investing in infrastructure, the scaffolding that may can help local communities thrive.

Because what we've seen is that Tip O'Neill, former House Speaker, used to call it all politics is local. Well, I like to think and say, all economics is local. And if we can do those kinds of investments, we can actually, as the president said, it sounded like it was a new talking point, but a new metaphor about, you know, the folks who baked the pie can also have-- eat the slices of pie that they're baking. And it comes through investments in families and communities that grow productivity, which is one of the key ingredients of economic growth.

AKIKO FUJITA: Bill, we continue to hear from employers about their challenges in trying to fill some of those job openings. And yet 3.9% unemployment rate, we're talking about near full employment. What does that suggest in terms of the wage pressures that employers are likely to see even further as they try to get additional employees through the door with the competition that's out there?

WILLIAM RODGERS: Yeah, I'm not a forecaster, but it has, right, in the last part of the previous year. Those have generated some upward pressures. However, in the long scan, this is still a fairly recent in a period where we've seen nominal increases in wages, sustained nominal increases in wages. And but not only just wages, but also compensation, right? Firms are having to or employers are having to think about other ways of attracting and retaining employees. And, you know, the forecast of where the economy is going to be going into this coming year suggests that the unemployment rate will still continue to trend down.

But it's going to trend-- but it will trend down. And the impact of upward pressure on wages will depend upon getting this pandemic addressed to where those who left the labor force will find that the wage offers are now above what economists call the reservation wage, right? People have higher reservation wages either because they're getting support, or they have higher reservation wages because the stock market has been doing really well. They have higher reservation wages because they may be an older grandmother who had been working, but now needs to help out with the child care in their community.

And so getting a-- finally addressing this, the pandemic, as I've said, but also continuing to grow the economy to provide opportunities that those wages will exceed people's reservation wages. And that will draw people back in and moderate some of those inflationary pressures from the wage side. That is, from the wage side.

ZACK GUZMAN: Mm-hmm. Federal Reserve Bank of St. Louis Institute for Economic Equity vice president and director, Bill Rodgers, there. Appreciate the time, sir. Happy new year as well.