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    Payrolls Trump Estimates, Compensation Falls as Low Wage Jobs Dominate

    The U.S. economy created more jobs in the past three months than originally estimated helping to alleviate concerns that weak fourth quarter growth and global market volatility would  generate a pullback in hiring, but salaries fell despite the job numbers dragged down by the continuing tilt to low wage and part time work. 

    Employers added 242,000 workers in February far more than the 195,000 expected and the previous two months were revised higher by 30,000, reported the Labor Department on Friday.

    The December payrolls were revised up to 271,000 from 262,000 and January totals rose 21,000 to 172,000 from 151.000.

    Unemployment was static at 4.9 percent. The labor force participation rate jumped to 62.9 percent its highest level in 13 months. The number of people not in the labor force declined by 374,000.   Labor force participation had bottomed at 62.4 percent in September, the lowest level since 1977. 

    The strong job numbers, however, failed to translate into wage increases, as has been the case for most of recovery.  Average hourly earnings dropped 0.1 percent in February, a far cry from the 0.5 percent jump in January. It was the first monthly decline and the largest since a 0.7 percent drop in December 2014.

    Annual wages also took a large hit, rising just 2.2 percent in February down from January’s 2.5 percent gain and 2.6 percent in December.

    For the past six years wage growth has averaged 2.0 percent annually, never rising above 2.3 percent in any one month. But for the five months from last September to January, annual wage increase jumped 25 percent averaging 2.5 percent.  

    The reason for the for the better than average wage increases in the final quarter may have had nothing to do with the strength of the economy but was likely due the introduction of higher minimum wage requirements.

    This rising wage gains at the end of last year had been cited by the Fed and many analysts as evidence that the robust hiring of the past two years was finally forcing employers to increase compensation, something long anticipated by economists.

    However it may be that February’s drop back to 2.2 percent, comparable to the 2.1 percent average of the 30 months before September, is a reversion to the long-standing wage trend after the onetime non-market intervention by governments. 

    February’s reversal in wages should end the possibility that the Fed will raise rates at the March 16th FOMC meeting, despite its own projection last year of four increases in 2016. 

    It is possible that the main factor in the anemic wage growth of the past seven years has been the predominance of low wage service positons in the newly created payrolls. That remained true in February.

    Of the 242,000  new jobs listed by the Bureau of Labor Statistics (BLS) in February, 78 percent, 189,000 were in low pay or part time positons as classified by the Labor Department: 86,000 in education and health services, 55,000 in retail sales and 48,000 in leisure and hospitality.  In January these categories accounted for 70 percent of new hires. 

    “Employment gains occurred in health care and social assistance, retail trade, food services and drinking places, and private educational services, “noted the BLS into the accompanying email.

    Higher wage positons in the BLS categories of transportation, finance, manufacturing and mining had a net loss of 33,000 jobs.

    The skew of the job mix to part time and lower wage work was supported by the 'household survey’, the assessment that produces the unemployment rate. Of the 530,000 new jobs recorded, 92 percent, 489,000 were part time positons.

    The so-called underemployment or U-6 rate, also from the  household survey, which includes people who have looked for work in the past year or are working  part time but want fulltime employment,  dropped to 9.7 percent from 9.9 percent.  

    The better known U-3 rate, 4.9 percent in February, only counts as unemployed people who have sought work in the past month and does not differentiate between part-time and full time work, both are counted as employed. 

    The average number of weekly hours for an employee also dropped unexpectedly in February, slipping to 34.4 from 34.6 in January, the lowest since January 2014.  No change had been forecast. 

    When the lower number of hours was combined with the drop in wages, the average weekly pay fell 0.7% from $878.15 to $872.04, just 1.7 permit higher on the year, the worst showing since February 2014.



    Joseph Trevisani

    Chief Market Strategist

    WorldWideMarkets Online Trading







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