Today’s jobs report was incrementally positive because the economy has now recovered all the jobs lost during the 2009 recession. But job gains only tell part of the story.
To get a clear understanding of what’s going on in the labor market, you need to dig deeper because it’s wages that really matter. That’s because about 70 percent of the U.S. economy is dependent on consumer spending and for consumers to spend, consumers need money in their pockets.
Consider what the New York Times’ Upshot column is saying today:
The average private-sector worker took home $838.70 a week in April. In January 2008, if you use April 2014 dollars, that was $818.31. In other words, in the last six and a half years, the average private-sector American worker has seen a total inflation-adjusted pay increase of only 2.5 percent, a lousy $20 a week.
And that explains why economic growth is still sluggish -and an important matter for policymakers to address.
Speaking of paychecks, in a well-intentioned attempt to address slow wage growth, the city of Seattle – just this week – voted an astonishing increase in the minimum wage from $9.58 to $15 an hour over the next few years.
Despite all the attention this move received in the national media, it won’t have a major impact on the economy, even should other cities begin to boost their minimum-wage laws.
That’s because very few people actually work at the minimum wage level and most are part-time or student workers. The Bureau of Labor Statistics reports that, nationally, only about 1.5 million people actually are paid at the minimum wage.
As I have pointed out in my Money and Markets columns, successful investing involves separating the signal from the noise, and Seattle’s increase in the minimum wage is just that – a lot of noise.
What you should be focused on is the aforementioned real household wages, which remain at 1995 levels as shown in the following chart.
Despite Seattle’s approach to the problem of no wage growth, deflationary forces will continue to plague the economy and threaten the underlying values in your portfolio.
That’s why you shouldn’t get distracted by Seattle’s bold move because it’s noise. On the other hand, an improvement in U.S. household median income would be a signal.
Proceed carefully with your investing, it’s dangerous out there!