Following up on Monday's post about the employment report, today's post will look at the most recent employment data using Hamilton's filtering method. The commenters on the Federal Reserve (see Tim Duy or Narayana Kocherlakota) have noted the uncertainty surrounding employment and inflation. Kocherlakota specifically sees weakness in employment and downplays inflation worries. Tim Duy is less prescriptive, but also notes the uncertainty. The graphs below demonstrate where this uncertainty is coming from.
Employment and weekly hours appear to be at their trend, or falling slightly below (not good), but initial jobless claims and unemployment are well below their trend (good). The most telling sign is the continued drop off in weekly hours, which could mean that employers have worked through the "slack" in the economy. The graph of real wages below corroborates that story:
From 2013-2015 real wages finally started to rise as weekly hours fell and the job market tightened. However, recent wage reports have indicated a return to stagnant real wages (meaning wages are only just keeping up with inflation). Real wages climb when employees have bargaining power, which happens when fewer qualified people apply for the same jobs. Despite a healthy June jobs report, the likelihood of sustained jobs growth seems to be dimming with each month.