Stagnant wages and diminished purchasing power facing Americans as unemployment rises even with more job openings

The Department of Labor reported a surprising uptick in unemployment claims on Thursday, with 315,000 new claims for the week ending September 6th. That was above the prior week’s reading of 304,000 and above expectations of 300,000. With this increase, the 4-week moving average has risen to 304,000, slightly above the low for 2014 at levels seen at the end of 2007.

The Department of Labor reported a surprising uptick in unemployment claims on Thursday, with 315,000 new claims for the week ending September 6th. That was above the prior week’s reading of 304,000 and above expectations of 300,000. With this increase, the 4-week moving average has risen to 304,000, slightly above the low for 2014 at levels seen at the end of 2007.

Job Openings, Unemployment Up on Slowly Rising Wages

More unemployment surprised many economists, who expected an improvement in the workforce to coincide with a rise in job openings and job churn, which is seen as an essential component of a healthy labor market.

Earlier this week, the Bureau of Labor Statistics said that 4.7 million job openings were posted in July, up 22% from a year ago. At the same time, the BLS said job hires rose by 7.7% while about 2.5 million Americans voluntarily quit their jobs.

Economists have expected improvements in job openings and lower unemployment consistently throughout the second quarter of 2014, as better weather and sustainably rising demand in the domestic U.S. market suggested more businesses would employ more Americans. However, the job market has also shown signs of weakness as wages stubbornly refuse to rise.

The most recent Employer Costs for Employee Compensation study by the BLS showed a decline in real wages earned by civilian workers. In June 2014, average wages and salaries were $21.95 per hour, up 0.5% from a year ago when workers earned $21.83.

Small Business Owners Upbeat as Wages Stagnate

While stagnant wages are frustrating American employees, small business owners have cheered the trend as an opportunity to control costs. A study released by the National Federation of Independent Business this week showed that small business optimism was rising, with survey respondents citing stagnant wages as a way for businesses to contain costs amidst low aggregate demand for goods and services.

According to the NFIB, which saw its Optimism Index rise to 96.1, the second highest reading since October 2007, stagnant wages are combining with low borrowing costs and strong inventories to help small businesses grow at a strong and sustainable rate. While the short-term benefit to businesses from the low costs has caused a more upbeat look, NFIB Chief Economist said that this could become a headwind for small businesses in the longer term. “Expectations are still glum, although improving grudgingly. More owners still think business conditions will be worse in six months than think they will be better. Few see the current period as a good time to expand,” Dunkelberg said of the survey results.

Scotland, China Lead Global Risks

While stagnation continues to threaten U.S. growth, uncertainties in Europe and Asia have also caused macroeconomic investors and analysts to ring alarm bells that global growth is under threat.

In Europe, the surprising advancement for the Scottish independence movement, which would dissolve the United Kingdom over three hundred years after it was established, has led some political analysts to fret that the fundamentals of the European Union could be under threat. Scotland is one of over a dozen separatist movements throughout the EU, which have grown in power since financial worries have created deep schisms and high unemployment throughout the Eurozone. 

Earlier this year, separatists in Ukraine’s Crimea region triggered a large-scale stand-off between Russia and European powers, which ECB President Mario Draghi says has become a drag on the European economy. Germany and Italy have posted shrinking GDP figures in recent weeks.

At the same time, a severe slowdown in demand in China has caused greater volatility in Asian equity markets. Earlier this week the Chinese government surprised analysts by showing that the growth rate of Chinese yuan has slowed sharply.

Money supply growth deceleration is a sign of declining demand, which may signal a slowdown in Chinese GDP growth or even the beginning of a recession in Asia’s largest economy.