A Benjamin Cole post
In my last post, we saw how the hottest labor market in the world—North Dakota, and especially in shale boomtown Williston, where 0.90% of the labor force is unemployed—has failed to generate much inflation, or even much wage action.
The most frightening number was from the U.S. Bureau of Labor Statistics, that “average weekly wages” were up about 5 percent in North Dakota year-over-year—but this statistic was not “cleaned” for changes in job mix or increases in hours. In other words, if well-paid oil workers make up more of the mix, or if workers put in more hours—both likely—then the 5 percent figure overstates hourly wage growth.
North Dakota is tiny and has no unemployment. Maybe not a telling example.
What about the big state of Texas, which also has had good labor markets in the last few years?
In the latest reported 12-month period ended September 2013, the number of people with jobs in Texas increased by 2.8% to 11.1 million (regional BLS figures lag the nation numbers). Texas easily topped the 1.7% increase in employment in the United States in the same time frame, according to the BLS.
Imagine the U.S. economy generating 329,000 jobs every month, instead of current rate of 200,000 or so, and you get a sense of present-day Texas. The Lone Star State is like the 1990s in the U.S. (when national inflation was moderate, btw).
To be sure, there was a type of a price to this boom. The average Texas weekly wage in the aforesaid period rose by 2.5%, and that is higher than the U.S. average of 1.9 percent.
So, according to back of the envelope figuring, judging from Texas, the U.S. could have a robust job market, for the price of a 0.6% greater annual increase in rate of average weekly wages.
That is to say, in Texas, as in North Dakota, a strong labor market does not translate into much higher wage growth. Only marginally higher.
Moreover, the BLS reports that when one considers total employment costs, not just wages and salaries, then costs for workers in petro-boom Houston rose 2% in the twelve months ending September 2013. The rate for the United States? Yes, 2%.
Employment costs in oily Houston rose no faster than the national average!
The inflation numbers are even muddier.
As of July 2014, the CPI-U for Dallas was up 1.2% year-over-year, vs. 2.0% for the U.S. city average. There is lower inflation in Dallas than most cities, for the latest reported period.
In seems a boom economy would have but meager impact on the CPI, or wage rates.
So why don’t we have a boom economy?
Richard “Inspector Clouseau” Fisher
Almost like the sun rising in the east, we can count on Dallas Fed Bank President and FOMC board member Richard Fisher to moose into the public debate with a point of view that…well…reminds one of Inspector Clouseau.
As I was Googling “inflation,” and “Texas” and “wages,” whose name comes up? Yes, Fisher’s.
Our esteemed Dallas banker held a press conference recently. “Texas wage inflation is about 3.5 percent, compared 2.5 percent for price inflation….We see it in everything from truck drivers to auditors,” said Fisher.
Where Fisher gets his numbers is a mystery; news service Reuters called the Fishy figures “a Dallas Fed estimate.”
Not only are Fisher’s number suspiciously high, but his comment also has the unfortunate effect of fanning class resentments, but let that slide. It is Fisher, after all, and if he wants to publicly condemn wages that are rising faster than inflation…well, it is Fisher. Our favorite FOMC member banker said further declines in unemployment could bring on even worse inflation, and that must be headed off.
To repeat, inflation in Fisher’s hometown is running at 1.2%, in one the strongest job markets in the nation.
But Fisher wants a tighter national monetary policy, and has voted accordingly and promises to do so again.