Unemployment drops in U.S. but wages remain low

April showers may bring May flowers as the old poem said, but the May Jobs Report released on Friday, brought a continuation of what we have seen the last few months: strong job growth, and weak wage growth, to the consternation of many economists, bankers and observers.

While many stumbled over themselves with superlative adjectives, it’s hard to see the ravings - true enough the economy added 223,000 jobs (190,000 were predicted) and the unemployment banner, or as we like to term it, the marquee rate hit 3.8 percent, a low not seen since 2000, but the clouds are still there.

For those that saw good, “the only negative in the report was a slight drop in the share of Americans who are either working or looking for a job, paced by a 170,000 increase in the number of people not in the labor force. That, in turn, put downward pressure on the unemployment rate, which sank from 3.9 percent in April.”

Simply put, 2.7 percent wage growth seems tepid to us, and with growth coming in low skilled jobs, that require little more than a high school education, this does not bode for a strong economic future.

“This is the last shoe to drop in the labor market,” said Torsten Slok, chief international economist at Deutsche Bank. “It’s just a matter of time before wages start going up more strongly, but there’s frustration that it hasn’t happened yet, even though unemployment is the lowest it has been in almost 18 years,” he told The New York Times.

He also has a theory as to why wages are so low: “While job switchers are being rewarded with raises, people who stay where they are not. Nearly 15 percent of what he calls “job stayers” saw no increase in wages in the past 12 months. At comparable periods in past economic cycles, that share was more like 10 percent.

“If you just stay around, you have less bargaining power,” Mr. Slok said.”

CBS reported on its website that “The unemployment rate for those with less than a high-school degree is now 5.4 percent, while unemployment for high-school grads is below 4 percent. 

"People with high school degrees or less than a high school diploma have been doing quite well in recent months," said Cathy Barrera, chief economist at ZipRecruiter. "Over the past year they have been rebounding faster than people with some college or with a college degree."

The Wall Street Journal quoting Adam Kamins, a senior economist at Moody's Analytics, reported: "This is a very tight labor market," and that, "Most everyone who wants a job has one."

"At the same time, that means that the jobs being added are sort of on the lower end of the pay scale, so that dampens overall wage growth," added Barrera.

On the other hand, it also leaves a hole for those that are looking for specific technical and quantitative skills to fill empty slots.

In McHenry County, Illinois, Terri Greeno, owner of an Express Employment Professionals, questioned whether some employers, and clients were being "realistic in their demands for workers with clean criminal histories and higher levels of education.  She told the Journal, "Is it a health and safety issue? If not, you have to ask if those demands are really related to to the outcome on the job," adding that in the tight labor market, "you're really competing for workers who already have jobs."

Payroll processor ADP reported on Wednesday a figure of 178,000, but some predicted them to show 190,000, and the difference is still the spread between wages and job growth, which historically should reflect a much stronger market.

“Job growth is strong, but slowing, as businesses are unable to fill a record number of open positions,” said Mark Zandi, chief economist of Moody’s Analytics, which helps ADP compile the report. “Finding workers is increasingly becoming businesses’ No. 1 problem.”

Here is a list of those, in May, with the strongest growth: retail, 31,1000, health care, 31,700, 25,000 in construction and 18,000 in manufacturing. But, some caution should be taken here, as these figures like the much ballyhooed “business services” are catch all, for all manner of jobs, low and high.

Perhaps wedded to employment gains for some of those above, “Black unemployment dropped to 5.9 percent, the lowest figure on record. That figure is usually double the unemployment rate for whites. It was 6.6 percent last month, also a record low at the time.”

What’s missing is sustained growth, overall with corresponding wages, to help sustain the nation’s biggest economic driver, consumer spending. The last time unemployment was this low, in mid-2009, the hourly non supervisory rate rose 3.9 percent. 

Still problematic is the severe drop in the labor force participation, a key economic indicator, and those not working, or seeking work, has declined over the last two decades shrinking the pool for prospective employees, but also many that need to be lured back to work by better wages.

Circling back, Pacific Standard noted “The lack of meaningful wage growth displayed so far in this recovery continues to puzzle economists. Most of the major economic indicators—unemployment, job openings, etc.—currently point to a tight labor market in which employers should be ramping up their efforts to attract workers. Despite scattered reports of companies utilizing large signing bonuses and additional perks for employees to attract workers, broad wage growth remains elusive.”

On the other hand, seeing the glass half full is “Glassdoor’s ranking of jobs showing the fastest wage gains over the past year includes high-skill positions as well as lower-skill, lower-paying fields where workers are in high demand. Paychecks for some of those jobs have been so low for so long they’re due for catch-up, says Andrew Chamberlain, chief economist of the job-posting site.

“Today’s strong labor market may be starting to improve pay across the income spectrum,” Chamberlain says, optimistically, in contrast to the opinion of the others. And, his list includes attorneys, truck drivers, cashiers and web developers showing the greatest growth, and corresponding higher salaries.

To note, a “severe nationwide shortage of drivers has driven up wages and led trucking companies to offer sign-on bonuses. Job site Indeed lists truck driver as the occupation with the most postings,” to the surprise of many and with a median base pay of $54,000, for those that like the long and winding road, there is gold at the end of the rainbow.

Trucking accounted for nearly 7,000 of the jobs gained nationwide last month.

For some employers, the tight market also has a deleterious effect on the overall economy, and the much needed consumer spending; but not being able to meet client and customer demands, with increased employees, some businesses could close and others might "not run a third shift at their factory."

Looking at one often overlooked area is Diane Swonk, an economist with Grant Thornton, who is “watching teenage unemployment, which was 12.8 percent last month. In April, it stood at 12.9 percent, down from 14.7 percent in April 2017.” in her conversation with the Times.

“The teenage unemployment rate is significant because this cohort is a prime beneficiary of tight labor markets, Ms. Swonk explained. When there was more slack in the system, teenagers had to compete with 50-somethings for scarce jobs. Now, as the latter group finds higher-paying positions, young workers are filling the gap.”

All of this is unlikely to make the Fed take a different turn, for rate increases, other than what has been established, and Jerome Powell, the chair, is too data driven, like his predecessor Janet Yellen, to be incautious, at their meeting in two weeks.

For the jobseeker the winners will be those that are younger, less educated and less affluent, and for those that have the skills that to meet advanced, or specialized employment, it’s time to move from the current job, to see any future, as the longer you stay, your paycheck will remain the same.

Updated June 10th, at 5:30 p.m. CSDT