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Acceleration in Wage Growth is a Statistical Mirage

The hype over wage growth had been nonstop since Friday's jobs report. No one bothered to look at the details.

Wage Growth Hype

There's a lot more hype if you look for it. The fact is, there is no solid evidence wage growth accelerated.

Wait a second, doesn't that lead chart show that wage growth is accelerating?

Yes it does. But it's the only chart. Let's look at other charts, also using BLS data.

Year-Over-Year Wage Growth Total Private vs. Production and Nonsupervisory Seasonally Adjusted

Some articles noted a difference between total private and nonsupervisory wage growth, but that's as deep as any analysis went.

For starters, when comparing year-over-year data it's best to use non-seasonally-adjusted numbers.

Second, the average workweek declined in January. That may have skewed the seasonal adjustments.

Third, averages are likely skewed by management wages. ​

Year-Over-Year Wage Growth Total Private vs. Production and Nonsupervisory Not Seasonally Adjusted

A comparison of January 2018 to 2017 unadjusted does not look quite so hot.

Year-Over-Year Nonsupervisory SA vs NSA

The Total series is new. It only dates to 2007. Production and nonsupervisory data dates back decades. Arguably that is another problem.

Note that in 2010 and prior years, SA and NSA comparisons tracked extremely well, often matching on the nose. Something happened since then.

Have seasonal adjustment gone haywire? Did Obamacare enter the picture?

Minimum Wage Hikes

The curious thing about these charts is that I expected an acceleration in wages. Why? Starting January 1, 2018, 18 states hiked minimum wages.

Even had all the charts shown wage acceleration, I would have asked: So what? Is it sustainable?

Hot Air Assumptions

All the reports jumped at one seasonally-adjusted number, ignoring the preponderance of data to the contrary.

Some now believe the economy is overheating.

The three things guaranteed to have overheated are stocks, junk bonds, and cryptocurrencies.

What's Next?

I do not know, nor does anyone else, but it will not take much for businesses to pull the plug on investment.

It's possible wage growth has accelerated or soon will, but despite the hype, evidence is scant at the moment.

This recovery is extremely long in the tooth. Overheating is likely to be the last thing on anyone's mind if the stock market collapse picks up steam.

Mike "Mish" Shedlock

Certainly seems that, all taking effect on Jan 1, the minimum wage increases would be a one-off contributor?

not 4 me

Mirage lol,moar of the same let's pretend we have growth,let's pretend the economy is in perpetual "recovery",lets pretend trump is different from obama,lets pretend california isn't becoming a giant homeless camp,4 moar years of playin the pretend game.

I sense a common theme... <iframe width="560" height="315" src="https://www.youtube.com/embed/hONtmFgh3IQ" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen></iframe> Best line "When you own a big chunk of the bloody third world"

I have heard Howard Marks say when he talks to CEO's, they all say they can't find enough qualified employees to grow. EVERY builder I know complains how they can't find enough construction labor. I see "hiring" signs on chain stores/restaurants everywhere. Wouldn't demand for employees outpacing supply lead to wage growth?

I'd say it's more that they can't find qualified people (insanely specific requirements) at the wages they want to pay. There is plenty of talented/capable labor out there, but employers on one end of the spectrum are spoiled with endless candidates to choose from or at the other end fighting for the low wage labor that is required to remain competitive.

This exemplifies why mainstream journalism should not be left as it typically now is to infotainment industry operatives. Thank you Mish for this most clear and useful analysis.

The wages have to go high enough so people can afford an IPhone X, because they cannot afford a middle income car, that costs almost $80,000. No wage hikes no sales! You can only buy back so much stock ! If the Feds keep raising interest rates no lower priced houses selling, big ticket items, cars, etc.

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