Weak Job Gains Offset Drop in Unemployment Rate, Wage Growth Continues to Improve

Jobs, Skills and Training

Employers added only 38,000 jobs in May with growth held down by seasonally weak hiring in a number of industries, but hourly wages have steadily grown at around 2.5 percent over the past nine months, significantly faster than productivity (0.6 percent).  Since 2012, the average hourly earnings of private sector employees has increased 9.1 percent, while productivity has grown only 1.5 percent.  This has led to an 8.0 percent increase in unit labor costs over the past four years, which has helped push prices up 4.0 percent, and corporate profits down 5.9 percent.  While job growth in May was the slowest in five years, the unemployment rate dropped to 4.7 percent.  Separately, the Federal Reserve's latest "Beige Book" economic report said that while employment and wages have grown "modestly" over the past month, "tight labor markets were widely noted in most [federal reserve] districts," with pay raises "concentrated in areas of labor tightness."  For example, in the St. Louis district, more than two-thirds of hiring managers reported increasing wages and salaries by more than they had in the past few years to retain employees and attract new ones.  In May, five industries accounted for all of the job growth:

• Health Care (+45,700);
• Professional and Technical Services (+25,800);
• Bars and Restaurants (+22,200);
• Government (+13,000); and
• Retail Trade (+11,400).

All other industries were relatively unchanged or saw large seasonal declines, most notably temporary help services (-21,000), construction (-15,000), wholesale trade (-10,300), mining (-10,200), and manufacturing (-10,000).  Importantly, there are over 307,000 jobs waiting to be filled on WeHireAmerica.jobs, the Association's job board.  Separately, a new report from James Sherk at the Heritage Foundation shows that when properly measured the average private-sector employee's compensation growth since 1973 has closely tracked the increase in productivity.  Although economists from across the political spectrum agree that businesses pay their employees according to their productivity, some studies falsely show that pay and productivity have diverged since the 1970s.  However, studies that compare the same groups of workers and use the same measure of inflation, show that pay growth closely tracks productivity growth.  Importantly, the Heritage report also notes that while compensation in the bottom and top 20 percent of the income distribution grew along with productivity gains, average compensation in the middle class grew much less than productivity.