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By the Numbers

Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.

The economic analysis we previously featured in By the Numbers is now available on the Western Asset Blog. This page will no longer be updated.

Markets Ignore Distorted Jobs Data, but Bite on Distorted Wage Data

Just as Gulf Coast states were bracing for the onset of hurricanes Harvey, Rita and Irma in August and September, so the markets have been bracing for the effects of those storms on the economic data. Today’s payroll data did indeed show large impacts of the hurricanes. Market response so far has rightly ignored the impact of the hurricanes on job growth, but mistakenly ignored the equally sharp effects of the hurricanes on average hourly wages.

Private-sector payroll jobs showed a decline of 40,000 in September. The measure we track, private jobs excluding construction and retailing, showed a decline of 23,000. That is a shortfall of about 190,000 jobs from the growth trends of recent months, which is a good estimate of the impact of the hurricanes.

Now, keep in mind that the jobs data don’t count people actually working. Rather, they count people on payrolls. So, if you earned a weekly, bi-weekly, or monthly salary from a corporation in the Gulf and couldn’t get to work during the September pay period because of the hurricanes, you still received a paycheck, and you still showed in the payroll data. The 190,000 workers effectively cancelled out by the hurricanes—for one or two months—are people punching a time clock who get paid by the hour.

None of this is rocket science, but just the basic facts of the payroll data. However, these points delineate the distortions to today’s hourly wage data. What those data measure is not the growth in workers’ wages, per se, but rather, the change in the average wages of all workers showing up on payrolls. Take 190,000 lower-wage workers out of the data, and the average wage of the remaining workers must go up. That average hourly wages suddenly spiked a whole 0.2% relative to previous growth trends is clearly a hurricane effect, yet the markets today are acting as if wage inflation has suddenly broken out. (Meanwhile, note that the hurricanes reduced payroll employment by a comparable 0.2%.)

In addition, the markets are ignoring some very significant downward revisions to previous months’ job counts. July private-sector jobs were revised downward by a relatively huge 69,000 jobs, and that revision applied to a pre-hurricane month. This downward revision may be the only non-distorted datum in all of today’s release. No, it is not an indication of impending doom, but it does underline the fact that economic growth (and inflation) are not accelerating the way many Street pundits claim they are.

Private-Sector Job Growth
Private-Sector Job Growth
Source: Bureau of Labor Statistics. As of 30 Sep 17

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 45 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.

Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.

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