Why December 2014 Payroll Numbers are Disappointing

The Amateur economist
Spread the love of economics

December 2014 Payroll Numbers

The December 2014 unemployment numbers were released this morning and contained a mixed bag – much like your Halloween trick-or-treat bag after you dumped on on your bedroom floor.

The Amateur economist
Chart from the U.S. Bureau of Labor Statistics

The 250,000 jobs added (Chart 2) for the month of December and the decrease of the overall unemployment rate to 5.6% are like the large candy bars that so few households gave out but all the kids loved. As a kid, you often wondered why all houses didn’t give out that kind of candy for trick-or-treat. Unfortunately, many homes gave out candy no one liked – most normal people at least. Small hard candy pieces (probably butterscotch, yuck!), Tootsie Rolls and pennies. What can a kid buy with a penny?

The Halloween candy no one liked in the December jobs report was the decrease for hourly earnings, combined with downward November earnings adjustment as well. For December, hourly wages declined in education, manufacturing, health care, utilities, finance and information services. While hospitality and leisure wages, those hard-working souls at hotels and restaurants, were generally flat.

Though one month doesn’t make a year, it is true that the U.S, has regained most of the jobs lost from the Great Recession. However, wage growth has been much slower than what one would expect in a recovery. When demand for jobs goes up (as in adding jobs in December), history shows that wages increase as well – simple supply and demand. Wage and salary growth for all of 2014 was only 1.7% while inflation for the year is close to 1%. So taken as a whole, the average American worker saw his or her wages increase less than 1% during all of 2014.

The causes for lack-luster wage increases vs. job gains is a point of discussion and debate in political and economic circles. The lack of hourly wage increases – despite job growth, is fueling the political demands for an increase in the national minimum wage. The December payroll numbers are disappointing because of the lack of wage increases expected with a large increase in people becoming employed. Will this trend continue in 2015? Check out the 2015 economic predictions.

The reasons for wage and salary earners not receiving increases in pay? Are they not working hard enough? Are there just too many workers or is something else going on? This is a topic for a later blog post – stay tuned!