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That's not a very pretty picture of real wages, especially since unemployment is now starting to rise off record lows, again.
Okay, I tried to pack some information in this chart.
The shaded areas represent economic contractions (recessions).
The red line shows the unemployment rate (right scale). It is upside down to show a strong inverse correlation to wages.
The black line shows wages (just those reported by the BLS) per capita (left scale, hourly earnings x weekly hours x 52 x civilian employment / population, and adjusted by the CPI).
The blue line is a 4th order polynomial attempting to make sense of the unemployment trend (just one interpretation, which could clearly be wrong, see Trend Line Disclaimer).
Now my observations.
1. If unemployment increases it will create two effects. First, real wages per capita will fall because the percentage of people working will fall. Second, real wages per capita will fall because the average hourly earnings will eventually fall. Companies won't feel so pressured to pay as much if there are more job applicants.
2. Real wages per capita is what is keeping the consumer alive. Therefore, we really don't want to see unemployment rise.
3. We are at near record unemployment and have a housing slump. Therefore, the odds of unemployment going down from here are probably not nearly as high as the odds of unemployment rising from here.
4. Unemployment has increased and some think it will continue to increase. I do. When one looks at the chart there are a few instances when unemployment increases by a trivial amount and then it reverses. However, there are also plenty of examples showing that once the corner is turned it rose quite rapidly.
5. Since at least 1964, every instance of a non-trivial rise in unemployment marked the start of a recession. Every single one. No exceptions. We are still at the trivial level. We better hope we stay there.
6. We are at near record wages per capita (adjusted by the CPI). The odds of real wages per capita rising from here seem lower to me than the odds of real wages per capita falling from here. As seen in the chart, there is a relatively strong relationship between unemployment and real wages per capita. Unemployment isn't falling any longer. It was 4.4% in October, 2006. It is now 4.7%.
7. Note the rise in real wages per capita heading into the stagflationary 1970s. Now note the rise in real wages per capita heading into 2000. Is it a coincidence that oil, gold, and silver have done well?
8. And lastly, we have plenty of reasons to be fundamentally concerned about the job market. Housing is weak. The consumer is showing stress. The Fed would no doubt love to lower rates more to help both out. There are a few problems though. The dollar is very weak and oil is $80+. They offer too much help and things will really fall apart. Further, it takes time for the help to arrive. Maybe too much time.
Of course, these are just my opinions. I'm deflationary in the short-term and inflationary in the long-term. How confident am I? Not very. I'm just sitting on the sidelines (with inflation protection for the long-term). I don't like betting against inflation. There's no limit to how much you can lose if you bet against monetary printing presses.
Source Data:
St. Louis Fed: Average Hourly Earnings: Total Private Industries
St. Louis Fed: Average Weekly Hours: Total Private Industries
St. Louis Fed: Civilian Employment
St. Louis Fed: Population: Mid-Month
St. Louis Fed: Civilian Unemployment Rate
St. Louis Fed: Consumer Price Index For All Urban Consumers: All Items
National Bureau of Economic Research, Inc.
5 comments:
So trivial unemployment is when you loose your job, and non-trivial would be when I loose mine?
And what about your girlfriend? Since she just got a new job, she would be a positive indicator.
She hasn't got a new job quite yet, so when I say "trivial" I mean only in the mathematical sense.
Her former employer, in addition to not giving her any documentation whatsover on the day she was laid off, not giving her a final paycheck, not informing unemployment (so she can't get benefits even after nearly a month), cancelling her health insurance but not informing COBRA, not informing her 401k provider, has offered her a glowing recommendation in theory but will not return ANY calls of hers or the calls from her new potential employer.
So let's just call this entire subject a non-trivial amount of pain in the non-mathematical sense.
I should also mention that since she's technically not unemployed as far as the unemployment office is concerned (no thanks to her previous employer), she therefore cannot be considered a positive unemployoment indicator if/when she gets a new job.
Since employment records relate closely to taxation issues, most State Labor Departments would not look to kindly on her employer's behavior.
Although the requirement for the employer to notify the state is unusual. Normally it is up to the employee to file and collect benefits. I can think of a recent example where the "employer" died. If the paper work machine relied on him, it obviously wouldn't be moving real fast.
She has filed but she can't get her benefits (yet, although they should be coming in retroactively at some point) because the unemployment office can't verify the information. The company simply refuses to return their calls.
She can't easily prove she's been laid off (as opposed to simply quitting). She received no paperwork of any kind.
She was due to start work at her new job in the morning. It has been postponed at the very least. Her new employer isn't having any better luck getting a hold of them than the unemployment office is having. (And you can bet that's raising red flags.)
In the world of litigation (not that I'm a lawyer), that's what many might call actual compensable damages. Their negligent actions (inactions) could affect my girlfriend's long-term career.
It is taking enormous restraint for me to not create a new post and mention the name of the company (it is a relatively large global firm), but I can't imagine that would help my girlfriend much.
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