New BLS jobs data released today

3/06/2015 09:20:00 AM
It's the first Friday of the month, which means the BLS released it's latest estimates of national employment. The headline figure: the economy added 295,000 jobs in February, on a seasonally adjusted basis. That's pretty decent.

The point that all the commentators are noticing, however, is that average hourly earnings increased at merely a 1.2 percent annualized rate, which is well below the official inflation target of 2 percent. The argument seems to be that because wages aren't accelerating, there must still be a lot of slack in the labor market despite the reasonably low 5.5 percent unemployment rate. I agree that the unemployment rate understates the amount of labor market slack due to how it defines the labor force, but disagree with the interpretation of hourly earnings:
Red and blue lines compare seasonally adjusted to actual employment data, while the green and purple lines compare hourly earnings to inflation.
This graph doesn't have today's data in it yet--it usually takes FRED a day or so to update new releases, but does provide us with the appropriate context. Importantly, average hourly earnings simply doesn't correlate with inflation or even labor market strength at all. During the recession inflation plummeted, the unemployment rate soared, and millions lost jobs. But average hourly earnings just chugged along like nothing happened. If you look at the full series, you'll see that there is an ever-so-slight bending of hourly earnings growth so that post-recession growth has been lower, but just barely.

But the bottom line is this: an individual month's data won't tell you anything at all about the path of hourly earnings, and even if it did, that tells you almost nothing about the state of the labor market.