A view of the labor market from a different perspective

Nonfarm payrolls grew by 192,000 in February, which included a rise of 222,000 in private-sector payrolls.  The household survey, which gives us the unemployment rate, showed that employers added 250,000 net new jobs last month, while Wednesday’s release of the ADP employment report revealed the private sector generated a net gain of 217,000 jobs.

That’s the first time in quite a while that all the surveys lined up, indicating that the improving economic climate is finally starting to generate a reasonable level of new jobs.

Often buried in the government’s release are two pieces of data that view the labor market from a different angle.  First, let’s look at average weekly hours (chart 1).



Interestingly, the number of hours worked each week has held steady at 34.2 hours over seven of the last eight months.  At the beginning of an expansion, most firms are reluctant to hire and encourage current employees to take on added work loads.

But the interruption in the upward trend suggests that employers are beginning to plug some of their open slots from the ranks of the unemployed. It seems less likely that the lack of upward momentum in average hours works is tied to lackluster economic growth given the recent spate of data showing an acceleration in activity.



Average hourly earnings, however, has languished during the recovery (chart 2).

On the one hand, unit labor costs are well under control, and the lack of traction in wages is helping to offset the stiff headwinds caused by rising commodity prices.

In other words, we are unlikely to see a spike in core inflation since labor costs are well under control since the supply of workers available is more than adequate in most industries.

However, the lack of any meaningful increases in wages is very likely dampening the nascent rise in consumer spending.

So while it helps to keep inflation under wraps, it also has the potential to limit gains in the economy.