Home > XE Currency Blog > Department of 'Huh?!?' ECRI on "paradoxical" wage growth


XE Currency Blog

Topics7703 Posts7748
By New_Deal_democrat November 16, 2015 12:14 pm
  • XE Contributor
New_Deal_democrat's picture
New_Deal_democrat Posts: 547
Department of 'Huh?!?' ECRI on "paradoxical" wage growth
Last week the Economic Cycle Research Institute posted a new article entitled "A Case of Wage Inflation Deception,"
highlighting this graph:   
and saying:
"Certainly, year-over-year (yoy) average hourly earnings (AHE) growth has risen to a six-and-a-quarter-year high (blue line). But – as in the spring of 2014, when we first flagged th is paradox, and a year or so later ... – it’s risen only because growth has fallen faster for aggregate hours, to a 20-month low (gold line) than for aggregate pay, to a four-month low(purple line) after both peaked nearly a year ago. 

"As we noted a year and a half ago, “while rising yoy AHE growth may seem like a good thing, in this case it is actually underpinned by cyclical downturns in the components that comprise it. … The bottom line is that the current rise in overall AHE growth is not a sign of strength. …”

Ummmm, no.


Average hourly earnings haven't risen "because growth has fallen faster than aggregate hours," but rather, *even though* growth in aggregate hours is decelerating.

To show why this is so, let's take ECRI's graph and extend it back to the inception of the 2 data series in 1964.  Here is 1964- 84:
and here is 1984 - present:
This is by no means the first time that average hourly wage growth (blue in the graphs above) has risen while growth in aggregate hours is decelerating (red).  The same thing happened in the mid-cycle slowdowns of 1966, 1975, 1986, and 1994, and before the recessions of 1970, 1990, 2000, and 2008.
Generally speaking, all it is telling us is that the economy is slowing down in an environment where either labor has some wage bargaining power, or there is a commodity deflationary pulse, or both.
By the way, the direction of YoY% growth in aggregate hours very closely mirrors that of nonfarm payrolls, as a mid-cycle indicator, but payrolls have the virtue of being less noisy as shown in the below two graphs:
So, when all is said and done, ECRI's commentary just tells us that we are at or past mid-cycle. Tell me something I didn't already know.
Paste link in email or IM