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Inflation-adjusted wages fell in 2004 despite job growth
The good news is that employment grew in 2004; the bad news is that the rate of wage growth fell.

The year 2004 was the first since 1999 that saw job growth in every single month, and it was also the first year since 2000 that the jobless rate declined. Yet the labor market remained relatively slack, and despite the reversal of job losses, there was little labor market pressure on employers to raise wages. Thus, as the chart below reveals, wages grew more slowly in 2004 than in the previous year.  In fact, the 2.1% growth rate for nominal hourly earnings in 2004 is the lowest in the history of this wage series, which began in 1964 (the series is for production, non-supervisory workers, the 80% of the workforce who are either blue-collar manufacturing workers or non-managers in services).

At the same time, inflation grew more quickly last year, accelerating from 2.3% in 2003 to 2.7% in 2004.  Clearly, faster price growth in 2004 was not the result of a tighter labor market creating wage pressures and consequently inflationary pressure.  Instead, prices grew more quickly due to the increased cost of commodities such as energy and health care.

This pattern of decelerating wage growth and faster price growth led to the first inflation-adjusted decline in the hourly wages of production, non-supervisory workers since 1993.  Clearly, the persistent slack in the labor market has adversely affected those needing work as well as employed workers who see their real wages eroding.

Falling unemployment, yet slower wage growth and faster rising inflation

Weakest job recovery on record
Since the start of the recession 46 months ago (March 2001), a negligible 62,000 jobs have been added in the U.S. economy.   Private sector jobs are still down by 703,000, a contraction of 0.6%. Both represent the worst job performance since the Bureau of Labor Statistics began collecting monthly jobs data in 1939 (at the end of the Great Depression). To put this performance in historical perspective, in every previous episode of recession and job decline since 1939, the number of jobs had fully recovered to above the pre-recession peak within at least 31 months after the start of the recession. (The average, excluding the 1991 recovery, has been a full recovery of jobs by the 21st month). In the three downturns since the early 1970s, the economy had not only recovered all the jobs lost during the recession but had also generated 5.7% more jobs than existed at the start of the recession. If this historical standard had prevailed, the economy would have had a positive job gain of 7,568,000 by what is now the 46th month of recovery, or 7,502,000 more jobs than we have today.

Change in total employment, 46 months after the recession began

Change in private sector employment, 46 months after the recession began

Employment revisions
Today’s data reflect revisions for both the March 2004 benchmark and seasonal adjustment.   The number for December was revised upward by a very modest 161,000.   As we have warned would be possible in past JobWatch bulletins, that number is less than the 236,000 that the BLS tentatively indicated would be the benchmark revision for March 2004. The BLS puts that benchmark revision for March 2004 at 203,000.

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