After a long-winded anecdote about men’s underwear, Jeffrey Snider finally gets to the meat of his post at RealClearMarkets:
For the sake of brevity, I’ll highlight here just a few of the major series. The Bureau of Labor Statistics calculates that nominal hourly compensation, the metric right where wage acceleration due to a labor shortage would show up, expanded by a seasonally-adjusted annual rate of 1.8% in Q4 2017 (the latest estimates) over Q3. The less noisy 4-quarter average was 2.4%, compared to an average of 3.8% in Q2 2015 before all the “global turmoil†and 4.0% at the start of 2014.
The results in “real†terms, meaning those adjusted for inflation as it is now, are much worse. Real hourly compensation was down 1.8% (annual) rate Q/Q in Q4, after growing by just 0.6% in each of the two previous quarters.
The Bureau of Economic Analysis in its separate estimates on personal income and spending reports one version of the former called Real Personal Income excluding Transfer Receipts (RPIxTR). Transfer receipts refer to government payments like unemployment insurance and welfare, and their exclusion is an attempt to gain a purer sense of the private economy as it is without non-economic additions.
This is one of the major economic data points that the NBER uses in determining the business cycle (FWIW). Between December 2013 and October 2015, RPIxTR grew by a seasonally-adjusted total of 8.7%, or an annual rate of 4.7%. In historical context, that wasn’t very good at all, but better than the years before.
If the labor shortage was real, and the unemployment rate indicative of anything meaningful, we should have expected personal income particularly in this view of it to accelerate by more than a little. After all, if there is so much demand for workers that businesses are competing more intensely for them, then that would mean not just wage growth but also the more important related component of hourly growth – as a business, if things are picking up and you have to compete for new workers you are going to use your existing labor to the max, too.
There might be a shortage among certain specialties but there is no generalized labor shortage. If there is it’s an invisible one. Mostly, I think that somber statements about a labor shortage are a way of justifying importing more workers in order to push wages down.
The very idea is either a misunderstanding, a mistake, a myth, or a baldfaced lie.
Well, men’s underwear aside…..
Discussions of wage pressure and labor shortages are dominating many businesses, and the potential purchases of businesses. In addition shipping costs, especially trucking has become a very big issue. At the producer price and commodities levels inputs for agricultural items (eggs, grains, oils) chemicals and metal fabrications are also rising. That’s a broad swath. Further, who knows if those prices are being driven by labor pressures.
This is our experience and that of owners with businesses in the marketing phase. There are some investment banks who produce “state of the M&A market” reviews by industry and the like. Same.
So how do we reconcile this? It’s possible that two sets of businesses are being measured. That would be quite an odd sampling disparity if by line of business. It could be a disparity by size. It could be timing; much of the cost surge has come in Q1. It could be some sort of reporting bias, or some dominating data in BEA etc all data.
I do know this. When you own the company you can look at real live invoices, not statistics. And when looking at other businesses, you can’t fool the balance sheet. Cash is either showing up -or not- as capital or debt reduction. The data mills can’t hide from that.
But it’s not gloom and doom. As a general proposition, offsetting price increases are successful.
Gas prices are up pretty sharply over last year. That’s going to affect a broad swath of products. How do you respond to the statistics that Snider cites?
Usually, I do not mind his long-windedness, but it was a strange column.
Tangentially related, I saw an article about a meat-packing company whining because they lost their illegal workers. If your business is built upon cheap illegal workers, your business should fail, and you are most likely in the wrong location.
Regarding agriculture: If your business model is built upon foreign countries importing your surplus, your business should fail. The US needs fewer farmers and less farming.
Dave
I’m always suspicious of mega-studies statistics. There is no guarantee of accuracy or honesty of methodology. Not to mention political agendas.
But that wasn’t really my point. I don’t know how to reconcile my and my cohorts experience with the statistics. But I didn’t make it up. And I hold no brief for any particular point. I just have to deal with it in a real world setting, not an academic study. If I had to take a flyer on an explanation it would be that very large companies experience is at variance with middle market companies and skew the overall reporting.