On Friday, the Bureau of Labor Statistics will release its monthly report on the U.S. employment situation. Traders and investors eagerly anticipate three key pieces of data – the unemployment rate, the number of nonfarm payrolls and the average hourly wage earned by American workers.
Over the past year, the U.S. economy has been adding jobs at an average rate of 210,000 per month and the headline unemployment figure has been at or below 4% for the past 5 months, levels we saw briefly in the year 2000 and otherwise haven’t witnessed on a sustained basis since the 1960’s. Consensus estimates for the September report predict an unemployment rate of 3.9% and an increase of 201,000 nonfarm payrolls.
Most economists consider the current situation “full employment” - in which nearly every American who is seeking work can find a suitable position. In previous periods with unemployment so low, the U.S. economy has witnessed some degree of wage inflation as employers are forced to offer higher wages to lure prospective employees from a shrinking pool of applicants.
That hasn’t been the case recently however as growth in average hourly earnings has been relatively modest. Though wages have been rising, the increases have been measured in fractions of a percent, month over month. Friday’s report is expected to show wage growth of 0.4%.
Amazon (AMZN - Free Report) , Target (TGT - Free Report) and Costco (COST - Free Report) - who combined employ over a million people - have all recently announced plans to increase wages for entry-level workers to $14-15/hour, but it remains to be seen whether those increases will work their way up the income ladder to middle-wage positions.
Beyond the figures compiled by the BLS, it can be useful to consider data compiled by private firms to gain a more nuanced view of the U.S. employment situation. Employment search firm CareerBuilder, which is majority-owned by Apollo Global Management (APO - Free Report) works with companies of all sizes to help them acquire and keep top talent. They released a new study prior to the BLS announcement on Friday based on extensive analysis of historical and current labor market trends that points to a continued “hollowing effect” in the labor market in which high-wage and low-wage job growth is eclipsing middle-wage job growth by a significant margin.
For the purposes of this study, CareerBuilder defined low-wage jobs as those that pay $14.17 or less per hour; middle-wage jobs as $14.18-$23.59 per hour; and high-wage jobs as $23.24 per hour.
According to CareerBuilder, the U.S. is expected to add 8,310,003 jobs (5.08 percent growth) from 2018 to 2023 – but only one-fourth of these jobs will fall within the middle-wage category. Factored into the total job growth is an expected loss of 369,879 jobs over the same time period, with middle wage occupations experiencing the majority of the decline.
The CareerBuilder report predicts the fastest growing occupations by number of positions expected to be added in the next five years. Not surprisingly, high-tech jobs like software and application development and positions in the health care field are expected to grow the fastest, while middle-wage positions in construction, maintenance and delivery are expected to increase more modestly.
Source: CareerBuilder report Oct 2018 / Emsi Occupation Data
“Technology innovation is moving at an unprecedented rate and is rapidly redefining the occupations and skills required in the job market,” said Irina Novoselsky, CEO of CareerBuilder, “Most of the fastest-growing occupations have a technical component to them.”
While wage stagnation in the middle-wage occupations is certainly not good news for those workers, it probably is good news for equity investors as it means that employment costs are likely to remain under control and also that inflation – as measured by the consumer price index (CPI) or the Personal Consumption Expenditures index (PCE) – will remain under control, allowing the Fed to continue on a path of only gradual interest rate hikes.
Though the social costs of a thinning middle class are debatable, from an employer and investor perspective, recent data are just like Goldilocks’ porridge - not too hot or too cold.
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