Stagnant Wages Qualify Stronger Jobs Report

There was plenty to cheer in last Friday’s employment report. The headline numbers showed payroll growth rebounded to a preliminary tally of 248,000 net new jobs in September, up from a disappointing tally the prior month. Heading into the fourth quarter, monthly average employment gains are the best we have seen in fifteen years. The other lingua franca measure of labor market health, the unemployment rate fell below 6.0 percent for the first time since mid-2008, putting it within range of the so-called natural rate of unemployment. As of August, the Congressional Budget Office estimates (emphasis on estimates) the current natural rate of unemployment is 5.7 percent.

Judging by the raft of commentary on Friday, commercial real estate market participants have wasted little time in linking the latest job numbers to favorable expectations for property fundamentals. But even a cursory review of the data shows the improvements are uneven along dimensions that matter for our industry. Among the most important qualifiers, wage growth remains lackluster. As compared to the prior month, average hourly earnings of private sector employees actually declined by one cent. The year-over-year trend, illustrated in the following chart and sourced from the Bureau of Labor Statistics, shows nominal earnings growth stuck at roughly 2.0 percent. That has been something of a puzzle of late for economists, since the lower unemployment rate and the improving balance of job openings to available workers should be fomenting stronger wage gains.