Claudia Sahm Talks Jobs Report

Claudia Sahm · New Century Advisors

Wages aren't outpacing inflation, as rising employer health-insurance costs absorb benefit spending.

Inflation has picked back up since the Middle East conflict began, and wage gains have slowed, especially in what reaches workers' paychecks. The employment cost index, unlike average hourly earnings, also counts employer benefit costs, which include health insurance and are rising considerably. Employers that pay higher benefit costs won't pass the same amount on in wages, so take-home pay improvement is limited. Given inflation has risen while wages aren't, she says this is not a recipe for workers getting ahead. Weak hiring also leaves workers little bargaining power, as the quit rate remains low.

“Not in an inflation adjusted sense... the ECI also brings in the cost employers pay for benefits, including health insurance, and those are rising pretty considerably... you just don't see the wage improvements. So I think given the backdrop of inflation has picked back up and wages just aren't rising... is not a recipe of getting ahead here.”at 2:11

Claudia Sahm · New Century Advisors

Payroll growth stays sub-100k, averaging about 70k this year as labor force growth slows.

Since the start of the year, payrolls have averaged a little under 70,000, with stable monthly readings around that level. Upside surprises have faded each time, so she has been head-faked several times this year and wants to see several months of strength before believing the labor market is accelerating. Structural drivers are behind the lower average: big shifts in immigration policy have changed labor force growth, and an aging workforce is pulling the average down. Demographics mean a few good months would not be enough to lift the average back to the 200,000 levels seen in prior years. Although the improvement over last year is notable, low hiring and low firing leave job seekers with a difficult market.

“So, yes, I think so, at least for now, and it's true. Since the beginning of the year, payrolls have averaged a little under 70,000.”at 3:31

Claudia Sahm · New Century Advisors

Sustained strong GDP growth needs labor force growth; AI productivity alone can't deliver it.

Asked whether a sustained 6% nominal GDP growth is achievable under current politics, she argues that without a growing labor force it will be hard to consistently deliver those GDP gains. Immigration and labor-force policy are the key structural concerns, more than the cyclical labor downturn. She is optimistic about technology improvements on the horizon, but says stringing together quarter after quarter and year after year of productivity growth is very tough. Policy therefore needs a multipronged approach, and relying on AI to carry strong growth is not the way to go.

“I am optimistic about some of our technology improvements on the horizon, but that is really tough to string together quarter after quarter, year after year improvements in productivity growth... Hanging our hats on AI is not the way to go in terms of really, like, wanting to keep those strong growth numbers.”at 7:26