Jobs Day Eve
The labor market is weakening, but no evidence of a recession
I’ll give a few quick thoughts on the labor market and the economy, knowing that the release of the jobs data on Wednesday morning may make me look stupid.
Manufacturing Employment Down by 200,000 Under Trump
I have written before that the importance of manufacturing jobs is seriously overstated. Going back 50 years, manufacturing jobs carried a substantial wage premium and were far more likely to offer healthcare benefits and pensions. This is much less true today as the wage premium has largely been eliminated.
The reason is that the manufacturing sector is no longer highly unionized. While at 7.7%, the unionization rate is still slightly higher than the 5.9% rate for the private sector as a whole, this difference is not enough to matter in a noticeable way.
Nonetheless, Donald Trump has made a big point of telling everyone that he is bringing back manufacturing jobs to America. I suppose a large share of his imaginary $18 trillion in foreign investment is in manufacturing. (In the real world, investment in factory construction fell sharply last year.)
Anyhow, manufacturing employment has been dropping all year and was down by almost 70,000 from December 2024 to December 2025. However, the January data will include benchmark revisions which are likely to push manufacturing employment down further. My bet is that the data will show that manufacturing employment is down by close to 200,000 since Trump took office, a decline of 1.6%.
Wage Growth Slows Further
Wage growth averaged close to 4.0 percent in 2023 and 2024. With inflation falling to under 3.0% by the second half of 2024, this translated into a pace of real wage growth of more than 1.0 % annually. It looks as though the pace of wage growth has slowed substantially even as inflation has edged higher due to Trump’s tariffs.
The Employment Cost Index showed average hourly compensation, which includes benefits such as healthcare and pensions, has risen just 3.4% over the last year. We’ll get new wage data with the jobs report, but it is likely to show a similar slowing.
The story is likely to be worse for people towards the bottom end of the wage distribution. Their pay had far outpaced inflation earlier in the recovery, but as the labor market has weakened, that no longer appears to be the case.
I have been giving some thought to the issue of healthcare cost growth, which far exceeds the rate of healthcare inflation. It’s been running over 7.0% year-over-year, compared to healthcare inflation of close to 3.0%. The difference is the growth in the quantity of healthcare services that people receive.
It is likely that what people pay for healthcare matters more to their perception of inflation than the increase in the cost of specific items, like hip surgery or the price of Prozac. Insofar as this is the case, the story on “real” wage growth may be considerably worse than most economists (myself included) generally recognize. The story is further complicated by the fact that the relevant factor for their “cost-of-living” would be their premium payments and out-of-pocket expenses, not the total cost of healthcare, much of which is picked up by employers or the government.
Unemployment Due to Quits Remains Low
I seem to be among a small group, along with Alan Greenspan, who view this measure as being important. To my view, this is a great voting with their feet story. If people are confident in their ability to get a new job, they are willing to leave a job they don’t like before they have a new job lined up.
In the very strong labor market in 2022, this percentage peaked at just under 16.0% in September. It has fallen sharply since then and stood at just 11.1% in December. By comparison it averaged 13.1% in the strong, but non-inflationary labor market of 2018-2019.
High Percentage of Multiple Job-Holders
The percentage of workers who held multiple jobs hit a high for this century of 5.8% in November. This figure, which is not seasonally adjusted and therefore not directly comparable to prior months’ data, is likely to remain high in January.
This measure is another voting with their feet story. In some cases, people take a second job because they have the opportunity. They see many job openings and decide they can fit a part-time job into their schedule and make a little extra money.
That is unlikely to be the story today when job openings and hiring are at very low levels. It is more likely that people are taking second jobs because they have to.
Unemployment for Black Workers Remains Elevated
One of the striking features of the labor market over the last year has been the sharp rise in unemployment for Black workers, even as the unemployment rate for whites has changed little. For Black workers the unemployment rate rose from 6.1% in December of 2024 to 7.5% last month. The rise was even sharper for Black women over age 20, going from 5.4% to 7.3%.
By contrast, the unemployment rate for whites rose by just 0.2 percentage points, going from 3.6% to 3.8%. Others can speculate on the reasons for this racial difference as well as I can, but it is striking.
That’s it for now. Let’s hope the jobs report doesn’t get anyone fired.
As Dean has pointed out before, the White House gets the BLS reports early, but is banned from sharing the data. Of course, the Trump Administration is ignoring that and lowering expectations. Here’s a free link to the New York Times article on the Trump Administration’s pre-whining:
https://www.nytimes.com/2026/02/10/us/politics/white-house-jobs.html?unlocked_article_code=1.LVA.ne4s.cNh-AdJ9oSBD&smid=url-share
Since you bring up health care costs, on the stuff Trump is claiming he’s doing on U.S. prescription drug prices, a while back I noted that, at Davos, he indicated numerous world leaders has already agreed to paying substantially increased drug prices so that we could pay less (and apparently keep pharmaceutical profits unchanged). This, as part of his “Most Favored Nation” thing, that he is hoping to get codified into U.S. law.
And, I also noted that we doubt the world leaders actually agreed to that.
(One place I have written that, with the link to the part of his Davos address with the assertion is within my own post here:
https://normspier828307.substack.com/p/the-president-at-davos-indicates )
However, a working paper from NBER that I got linked to by a Health Affairs newsletter, this one:
https://www.nber.org/system/files/working_papers/w30053/w30053.pdf ,
has me realizing my whole conception of the Most Favored Nation (MFN) thing is wrong. Many economists probably already realized this.
If MFN kicks in, then pharmaceutical companies, in order to not lose their substantial U.S. revenue, can be expected to bargain in such a manner as to extract a higher price in Europe and other developed countries than they get now, likely by bargaining harder, and threatening to withhold each drug entirely from the market in each country. (No agreement with Trump is involved. Just the force of the new game theory result with the MFN rules.)
Further, the authors of the paper, admittedly using a complex model that can’t possibly be that certain, come up with relatively small decreases on U.S. drug prices with MFN.
So, MFN seems like a trick, with MFN suggesting to people that U.S. drug prices will go down to CURRENT prices in the rest of the developed world, when they will not. They will go to the FUTURE higher prices in the rest of the developed world. (And give the rest of the developed world a jolt of healthcare cost inflation, and hostility to the U.S., as well.)
The authors indicate that direct price controls in the U.S. would have a better effect on U.S. prices.
(I did a little post on this MFN angle on my own substack:
https://normspier828307.substack.com/p/trumps-most-favored-nation-on-drug
though I don’t think it has any content not in this comment.)