The Payroll Ritual

Payroll Friday continues to be among the more absurd rituals of the finance industry. That’s saying something because in this business there are many that in any other context would be laughed out of the discipline. Never mind the impropriety of attempting to use a single monthly yardstick for economic progress, over the last four years the payroll report has made itself irrelevant.

I made this point fairly regularly in 2015 and 2016. The payroll reports were still awesome by the standards of this “recovery” and yet it didn’t matter as the US economy grew weaker and weaker despite what everyone thought of them. People kept clinging to the Establishment Survey as if it was some magic shield against the “manufacturing recession.”

And those were the good ol’ days for the BLS. Today, it’s just the unemployment rate all by itself. At 4% and less for the fifth straight month in August 2018, it just has to add up to a booming economy; except the math doesn’t work. As noted yesterday for the nth time, there is just no evidence in wage and income growth that the labor market is even close to tight. The major media outlets are all yelling about some massive labor shortage but employers sure aren’t paying up for workers.

That’s why the comedy of this, particularly irrelevant Payroll Friday. The average hourly wage rose in August by the most since 2009! That’s all it took, a headline out of context. The hourly rate increased by 2.9%, which was the highest, but barely more than in July or really any other time of the last set of years inclusive of payroll irrationality.

Given the headline and the knee-jerk market reaction to the “highest since 2009”, it’s really underwhelming, isn’t it? It reminds me of 2014-15 and the constant reminders of the “best jobs market in decades”. This is just wishful thinking, the desperate grasping for the unemployment rate to become real because that’s the only way this recovery can possibly be anything other than the same illusion.