Economic Commentaries

Entries for May 2015


Economic policy is perplexed. The jobless rate and jobless claims are the lowest since before the “Great Recession”. Yet output growth is well below normal and most recently stalled. Wage growth is moribund while overall inflation flirts with the zero bound. In this circumstance the Federal; Reserve would like to begin normalizing the interest rate structure, but it continually finds itself conflicted.

But perhaps conditions are not as perplexing as analysts forecasts. In our Commentary dated 1/18/15 we laid out several reasons for why a fully employed jobless rate and wage growth may be significantly lower than the 6% then 5.5% and now 5% rate that the Federal Reserve and others assume. If so, then considerable labor slack still exists and is contributing to stubbornly low wage growth.

Real wages are not as depressed as nominal wages because inflation is so low. But the stubborn 2% rate of nominal wage growth comes despite recent increases in the minimum wage. On reason is that wages in the petroleum and other extractive industries is higher than the average and employment in these areas is being decimated by the energy, mining, and agricultural downturns.

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Posted in: General