It was a multiple-theme day upon the release of the June employment report, but the umbrella reaction was that the news was weaker than expected. The basics, from CNNMoney:
The labor market posted weak job growth for the third straight month, according to a government report Friday, although a jump in wages could keep the Federal Reserve on its course of raising interest rates.
There was a net gain of 121,000 jobs for the U.S. economy, according to the Labor Department report, up from the revised 92,000 gain posted in May.
Brad DeLong characterizes the report as "Not disastrous, but not good news," Tim Iacono surmises that "today's report provided more evidence of a slowing economy," while The Capital Spectator opines that "the job-creation machine continues to sputter, or so it seems." Taking the slightly longer view, Calculated Risk suggests that "job growth has been about as expected," but Barry Ritholtz (presciently writing in advance of the data release) thinks the trend in the employment situation has been none too great.
There isn't much doubt that net job creation has fallen off of last year's pace, and there is no one sector that stands out as the culprit:
One of the more interesting stories was the false positive emitted by a couple of fairly new, touted but untested, advance indicators of the official BLS stats, the Monster employment index and the ADP national employment report, in particular. On the rather spectacular seeming failure of the latter, Bizzyblog grouses "Somebody Has Some Explaining To Do."
The other piece of news in the BLS report was some strong wage-growth numbers that on reflection were nothing of the sort. From Forbes.com:
...average hourly earnings rose 8 cents, or 0.5 percent, to $16.70. Compared with a year earlier, June hourly earnings were up 3.9 percent, the fastest annual growth pace since June 2001. The monthly figure was stronger than the 0.3 percent expectation and a sign that wage pressures could be increasing.
At Angry Bear, pgl lets an even angrier Kevin Drum do the talking:
...inflation over the past 12 months has clocked in at about 4.1%, so a 3.9% rise in nominal wages is a decrease in real wages. This is the "wage spike" the Fed is supposed to be concerned about.
Riddle me this: if the Fed tries to put the brakes on wages every time they creep up from negative to zero, what will hourly wages look like over the long term?
Answer: consistently down. Which is exactly what they've looked like over the past several decades.
A couple of points. The fact that the payroll average hourly earnings series has been stagnant over the past several decades is a marker for why I think it is not a good series to look at when trying to guage the pace of labor compensation. As for what the Fed looks at, let me suggest that the majority Fed economists (a) Understand that the hourly earnings series is too narrow to be useful; (b) Understand that it is real, not nominal, compensation that matters; and (c) Understand that it is productivity-adjusted compensation that matters in any event (i.e. something like real unit labor costs). If it was me, I would ignore any suggestions that the wage part of today's report contains any information at all about inflationary pressures to which the central bank is wont to react.
UPDATE: On that last point, it does appear that some education is in order. From MSNMoney:
... a larger-than-expected rise in wages raised red flags about inflation, and soon sent stocks tumbling.
From the AP, via the Washington Post:
Some economists were hopeful that the Fed might take a break in its two-year long rate raising campaign and leave rates alone next time.
But the specter of wage inflation cast some doubt on that scenario, said [Ken Mayland, economist at ClearView Economics]. He thinks another increase is in store next month.
"Wage inflation is picking up,'' Michael Gregory, a senior economist at BMO Nesbitt Burns in Toronto, said before the report. "Wage pressures are just one more piece of evidence that the economy is taut, and that capacity pressures are coming to the forefront.''
... the increase in average hourly earnings and the unemployment rate will likely sustain labor-market-based fears of inflation at the Fed.
-- Bear Stearns Economics...The report is thus ambiguous for Fed officials, providing support both for those who want to pause (payrolls) and those who want to tighten (wages, mainly).
-- Goldman Sachs Economics Research...The June jobs report showed soft job creation but faster wage inflation – the worst of both worlds...-- Nigel Gault, Global Insight
And so on, and so on. On the other hand, I was able to find one lonely, hopeful voice:
Coupled with strong productivity growth, higher wages are not likely to push up key measures of core inflation.
-- Peter Morici, University of Maryland
Yes, more of that. Please.
UPDATE, THE SEQUEL: Tim Duy makes his usual good sense on the issue, but still believes that the FOMC "will read this report as a sign that while the economy is slowing, the pace of activity remains strong enough to heighten inflationary pressures."