This reverses the negative trend we saw in July. In July we hit a bump in the road to economic recovery when only 73,000 new jobs materialized.
Still, despite our having done better in August than we did in July, it's clear that the economic recovery has slowed. Payroll growth averaged over 200,000 new jobs per month in the first six months of the year. We're not doing nearly as well in the second half of the year.
The key issue is not the quantity of jobs that we create, it's the quality of those jobs. We are seeing a pattern of salary deflation in our payroll data.
If we had created 300,000 jobs in August, it wouldn't necessarily be great news if every one of those employees was taking a 30% salary hit relative to what they made in their previous jobs.
When your debt burden stays constant or rises and your salary deflates, it's a recipe for disaster. Things like increases in the price of gas as the station or a higher mortgage payment become much more painful than they would otherwise be.
Salary deflation is the equivalent of inflation. The price of cat food doesn't go up, but it takes a bigger percentage of your take-home pay to keep Fifi happy.
Interestingly, salary deflation mainly affects new hires. It's still rare in our economy for the boss to lower salaries. You don't see companies sending out letters in December that say "Raises for the following year will be -5%. Let's hope things turn around soon."
Salary deflation adds insults to injury. It picks on those who are unemployed and are just getting back into employment.
The implications are clear for those who are employed - don't quit your job!
I believe the root cause of this is offshore outsourcing. That's not only eliminating U.S. jobs, but it's also eliminating business opportunities for small businesses. In effect, small businesses are less competitive than they used to be, and that's going to take a big toll on the economy, given the huge contribution small business makes in terms of GDP and employment.
The argument is that salaries will rise as the current imbalance in supply and demand for new employees improves. In a global economy, that's going to happen at a much slower pace than it has in previous recoveries.
Thanks for letting me share my thoughts and observations with you.
Best regards,
Michael D. Alter
President
SurePayroll
www.SurePayroll.com
