Saturday, July 4, 2015
Friday, July 3, 2015
- by New Deal democrat
One reasonable leading indicator for real wage growth is the unemployment rate, and especially the broad rate which includes underemployment, such as involuntary part time workers. Now that we are halfway through the year, let's update this comparison.
Below is a graph of the broad, U6 unemployment rate, currently at 10.5% (blue, inverted), compared with nominal wage growth for nonsupervisory workers, currently at 1.9% YoY (red). To aid in the comparison, the zero line is set at wage growth of 2.5% YoY, and the U6 unemployment rate is at 10%. Since the U6 line is inverted, 9% underemployment shows as +1% (10% - 9% =1%), while 11% underemployment shows as -1% (10% - 11% = -1%):
Since this broad measure of underemployment has been kept, wage growth has accelerated once underemployment was down to the 9.5% to 10% range.
Now here is a close-up of this comparison over the last year:
Underemployment has declined by about 1.5% in the last 12 months. The good news is, if that rate continues, we should see wage growth start to pick up in the next 4 to 8 months. The bad news is, we are already 6 years into the economic expansion, and we've pretty much run out of room for a continued assist from declining interest rates on mortgages and other debt.