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No Wage Inflation? Not So Fast: Overtime Hours Soar

Courtesy of ZeroHedge. View original post here.

"And just like that, wage inflation went away."

Despite unemployment falling to 3.9% and tight labor markets, the BLS is reporting the lowest levels of annualized wage inflation in a year.

However, as Southbay Research points out, what is going on is a mirror image of the February wage inflation scare, when a drop in hours worked prompted the BLS to calculate that average hourly earnings jumped even as weekly earnings remained flat.

First, here is what the wage data revealed:

  • Accelerating inflation: Construction (0.6% m/m), Retail (0.5%), Information (0.3%), Pro Services (0.3%)
  • Decelerating inflation: Wholesale Trade (-0.1%), Transportation (-0.2%), Financial Services (-0.4%), Education & Health (-0.1%), Leisure (0.2%)

What is going on is that at the aggregate level, hourly earnings – which as the name implies are an "average" - declined. The driver was simple: a sharp jump in hours worked, specifically at the "overtime hours" level, which hit a new post crisis high.

As Southbay points out, as a sign of pressure, overtime jumped again and remain at a cyclical high.  Overtime is both costly and (in a tight labor market) a sign that employers can't find more workers.

Combining this regular hours, and we get the answer for today's surprising miss in wage growth, even as the unemployment rate printed a new cycle low of 3.95: the real culprit in the low AHE is the sudden jump in hours worked, which of course, is the denominator in the AHE calculation.

And judging by the sharp post-kneejerk spike in the dollar after the disappointing, post-payrolls slump, the market may have figured this out.


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