By Paul Gomme and Peter Rupert
The BLS announced that payroll employment increased 263,000 in September with an additional 11,000 revision to July’s numbers. Employment gains were widespread with only retail (-1,100), transportation and warehousing (-7,900) and government sectors declining (-25,000). The service sector added 244,000 jobs, of which health care (75,000) and leisure and hospitality (83,000) the prime movers.
Employment in retail has traditionally been higher than that in the leisure and hospitality sector. After the Great Recession leisure and hospitality employment grew much faster than retail and overtook retail employment in 2018. The pandemic had a devastating effect on employment in both sectors with leisure and hospitality taking a much larger hit. Recovery was pretty swift and the two sectors are now equal in terms of employment. It remains to be seen if leisure and hospitality employment will again outpace retail employment.
Average hours of work remained at 34.5 and with the employment increase lead to a 0.17% increase in total hours worked. Average hourly earnings increased from $32.36 to $32.46. Year over year CPI inflation is hovering around 8% and average hourly earnings over the year have risen 5%, leading to a 3% decline in real earnings as shown in Figure 6.
Figure 7 takes a longer view of the average real wage in the US. In this figure, we have normalized average hourly earnings, the CPI, and PCE deflator, setting each equal to 100 in March 2006 — the first available date for average hourly earnings. We have used a logarithmic scale for the vertical (y) axis so that a straight line represents a constant growth rate. The average real wage is given by the difference between average hourly earnings and a price index, represented by the gap between the average hourly earnings line, and that of a price index. In fact, since we have used a logarithmic scale, a constant gap implies a constant percentage gain in the average real wage, measured since March 2006. For the most part, there is a positive gap between average hourly earnings and either the CPI or PCE deflator. This means that, relative to March 2006, the average real wage has, for the most part, increased. The exception to this pattern of real wage gains is in the midst of the Great Recession (2007-09) when the CPI line lies above that of average hourly earnings which means that real wages declined relative to March 2003.
Figure 8 redoes the analysis underlying Figure 7, but focusing on the COVID-19 pandemic and its aftermath. To this end, we normalize average hourly earnings and the price indices to equal 100 in February 2020. As with Figure 7, the average real wage is the difference between average hourly earnings and either the CPI or PCE deflator. Once more, real wage gains are visually represented by the gap between the average hourly earnings line and that of a price index. Measured again by the CPI, the average wage was higher than its pre-pandemic level through 2020 and 2021. However, starting in early 2022, the CPI line rises above that of average hourly earnings which means that the average real wage has fallen, again relative to February 2020. An advantage of Figure 8 over a plot of the real wage is that it gives some perspective on the source of real wage movements. In particular, since mid-2020, nominal wages have grown at roughly a constant rate (the average hourly earnings line is almost a straight line). It’s the increase in the CPI, starting in 2021, that has eventually led to a decline in real wages. However, using the Fed’s preferred measure of the price level, the PCE deflator, shows that the average real wage has increased relative to February 2020, although these gains have eroded somewhat in 2022.
The household survey showed a 57,000 decline in the labor force. The number of unemployed persons fell 261,000, the number employed increased 204,000, leading to a decline in the unemployment rate from 3.66% to 3.49%. Note that the labor force participation rate remains lower than it was pre-pandemic.
Initial and continued unemployment claims were released last week and there was a hefty uptick in initial claims, climbing to 219,000 and a moderate increase in continued claims, rising to 1,361,000.
Although there has been a bit of a slowdown in some parts of the economy, the labor market continues to look pretty strong. Job vacancies have declined somewhat in recent months but there are still about 2 vacancies for each unemployed person.
