The BLS reported Friday that average hourly earnings rose by 2.1% on a yearly basis to $23.80 in August, but down from $23.83 in July. The annual rate of increase has been very volatile, jumping from just 1.3% in July while June was up 2.8%. The rate of increase in average wages has fluctuated from 1% to 2.9% since 2010, averaging around 2%. July CPI rose by 2% on an annual basis. The suggestion is that hourly wages are now keeping place with subdued inflation . But 2% grossly understates the real rate of inflation due to the way the government suppresses the inflation gauge.
Contrast the wage gain with the 18% gain in equity prices over the past year and you can see where the Fed’s QE is working and where it isn’t.
Average weekly earnings were also up by 2.1% year to year. They were virtually unchanged in July, and up 4.3% in June, a month in which non salaried employees may earn mid year incentive pay. The volatility in this figure may also be related to the variability of overtime hours and pay.
The 12 month moving average in average weekly earnings has dropped from around 3% in 2011 to around 1.9% now. Most measures of labor rate inflation seem to have honed in on the 2% level. That would be ok if CPI at 2% was an accurate representation of inflation.
QE isn’t boosting the number of full time jobs and it isn’t boosting compensation. Average hours worked rose from 34.4 in July to 34.5 in August, which is exactly the same as a year ago . This suggests that the looming start of Obamacare has not, in the aggregate, caused average weekly hours of workers to be cut so that employers could avoid the requirement to provide health insurance. While obviously it is true in the cases that have been reported anecdotally, in the aggregate, it appears to have had no effect.
I have written essentially the same thing for the past 9 months in these next two paragraphs, which bear repeating.
Why isn’t all the new money which the Fed is pumping into the system causing job growth or wage growth? Many of the unemployed do not possess the skills that are in demand in the market. Or they are overskilled. All of the growth is in low wage, low skilled service work. Economic pundits and FOMC policy makers must realize that the 10 million fake jobs spawned by the 2004-07 housing bubble are not coming back, which is why the Fed is trying to spawn new bubbles, hoping for the bubble jobs they create.
A 7.5% unemployment rate is probably “normal.” It will only drop as the discouraged and despondent simply leave the labor force. The bubble unemployment rate of 5.5% was abnormal. If the goal is to continue QE until the unemployment rate hits a target of 6.5%, then the policy is simply a matter of fomenting the next bubble to generate millions of fake jobs.
It is by now patently obvious that QE is not working. Those jobs are not going to magically appear. Employers have learned that with the glut of labor, they can get more for less from their labor input.
This reality has finally sunk in with the clinically insane FOMC which has persisted in its delusion that QE helps in the face of 2 years of incontrovertible evidence that it does not. They are likewise becoming aware of the dangers of inflating bubbles that are destined to collapse yet again. That’s why they will begin The Taper in September. The Fed’s liars and propaganda meisters will declare victory and go home. They are already at work on that, proclaiming that employment is doing fine and they’ve done what’s needed.
How does this matter to the stock market? It doesn’t really, except for the fact that whatever corporations are able to squeeze out of labor, they’re able to shift into executive compensation, and possibly profits. Eventually it will matter in a different way, and not a good way.
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