One of the disappointing aspects of the Bureau of Labor Statistics (BLS) February employment report was the news that wages fell in February. The BLS reported that Average Hourly Earnings fell from $25.38 per hour in January to $25.35 per hour in February.
That was surprising given reports of labor shortages in various industries. Typically you would assume that if demand (i.e. job openings) exceeds supply (i.e. skilled labor) then wages would rise. Since wages fell, that set me off on a hunt to figure out what caused the drop in wages.
Today’s post examines more of the details behind the nation’s wage picture. Note that this analysis explores the private sector jobs because the government sector does not report their average hourly earnings. I will apologize up front that this post runs a little longer than normal due to the data tables that are included.
Let us start by understanding where the jobs are. The table below illustrates total number of jobs for each industry sector.
|Industry Sector||Total Employees||Percent of Total Jobs|
|Education & Health Services||22,488,000||18.51%|
|Professional & Business Services||20,019,000||16.47%|
|Leisure & Hospitality||15,435,000||12.70%|
|Transportation & Warehousing||4,864,000||4.00%|
|Mining & Logging||734,000||.60%|
|Total Private Sector Jobs||121,518,000||100%|
Now that we know where the jobs are, let us look at what the wages are for those jobs. The following table leaves the industry sectors ranked by their weight to overall jobs and plugs in the average hourly earnings for each sector.
|Industry Sector||Average Hourly Earning|
|Education & Health Services||$25.59|
|Professional & Business Services||$30.36|
|Leisure & Hospitality||$14.59|
|Transportation & Warehousing||$23.20|
|Mining & Logging||$31.51|
What we see from the above table is that some of our highest paying jobs in the U.S. have the smallest amount of jobs. In fact the two highest paying job sector ranked last (Utilities) and third from last (Information) when ranked by the number of employees in those industry sectors.
If we are trying to understand what caused Average Hourly Earnings to decline in February we need to look at how each industry sector fared regarding jobs gains and losses as well as wage gains or wage declines. The table below provides that information.
|Industry Sector||Wage Rank||Jobs Gains/Losses in February vs January||Change in Average Hourly Earnings, February versus January|
|Education & Health Services||#8||+86,000||+$.01|
|Professional & Business Services||#5||+23,000||($.11)|
|Leisure & Hospitality||#13||+48,000||($.02)|
|Transportation & Warehousing||#10||(5,300)||+$.06|
|Mining & Logging||#4||(18,000)||($.19)|
The discouraging news from this data is that four out of the top five wage categories saw declines in their average hourly earnings rate. The really bad news is for people who work in the Mining & Logging sector. Not only did the sector suffer job losses but those who still have a job saw their average hourly earnings drop by nineteen cents per hour. Ouch!
To pull this all together to explain the actual drop of three cents per hour, the following table shows what each industry sector contributed to the three cents per hour wage decrease. This incorporates their actual wage change combined with the sectors weight with regards to overall jobs (i.e. Percent of Total Jobs x Change in Average Hourly Earnings).
Note: Due to rounding, the numbers will not reconcile. The BLS does not take their data to three decimal places; they round up.
|Industry Sector||Contribution to Change in Average Hourly Earnings|
|Education & Health Services||+$.01|
|Professional & Business Services||($.02)|
|Leisure & Hospitality||$0.00|
|Transportation & Warehousing||$.00|
|Mining & Logging||($.01)|
The exploration of the details of wage growth in the U.S. reveals several things:
Wages will continue to be an area of focus since wages are the fuel that supports consumer spending. If we hope to see consumers increase their spending on a sustained basis, we need to see wage growth supporting the benefits of lower fuel prices and cheaper import prices. Without sustained wage growth, consumer spending will be vulnerable to changes in fuel and import prices.
Steve Scranton is the Chief Investment Officer and Economist for Washington Trust Bank and is a CFA charter holder with over 30 years of investment experience with equities, tax-exempt and taxable fixed income securities. Steve actively participates on committees within the bank to help design strategies and policies related to client and bank owned investments. Steve also serves as the economist for the Bank and has been a featured speaker for both client and professional organization events throughout the Northwest.