The Myth of Wage Growth Strikes Again

It's been over a year now that we've heard the mantra that "wages are finally rising." It comes in waves. The chanting of the mantra is then followed by a long silence. The silence results from the fact that wages didn't really rise in any meaningful manner. Wages in this industry or that city or another part of the country (where you likely don't live) may have risen for a period. But any general increase in wages remains a myth.

The inimitable Lacy Hunt recently provided good insight into what others have called gross manipulation of employment numbers by the government. Consistent with his usual careful analysis, Mr. Hunt provides the details of how the category of "contingent workforce" skews both employment and wage statistics:

...alternative labor market measures indicate substantial slack remains and evidence is unconvincing that wage rates are currently rising to any significant degree. The U.S. Government Accountability Office (GAO) released a report that looks at the “contingent workforce” (Wall Street Journal, May 28, 2015). These are workers who are not full-time permanent employees. In the broadest sense, the GAO found these workers accounted for 40.4% of the workforce in 2010, up from 35.3% in 2006. The GAO found that this growth mainly results from an increase in permanent part-timers, a category that grew as employers reduced hours and hired fewer full-time workers. The GAO also said that the actual pay earned was nearly 50% less for a contingent worker than a person with a steady full time job. The process portrayed in the study undermines the validity of the unemployment rate as an indicator because a person is counted as employed if they work as little as one hour a month. Additionally there is an upward bias on average hourly earnings due to the difference in hours worked between full-time and contingent workers.

If you've never read Lacy Hunt's commentaries, but you do struggle to understand what's going on in the economy, give him a try. This selection was lifted out of his "Hoisington Quarterly Review and Outlook" as reported on John Mauldin's InvestorInsight.com. Although not the easiest of reads, I enjoy Lacy Hunt's writing as well as what can be found on Youtube. I always learn something.

You'll also likely get a deeper understanding of the whole issue of if and when interest rates will rise. Although not mainstream thinking, one can't easily dismiss his view that treasuries, specifically long-term treasuries, remain a viable, even desirable asset to own.