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Net Net: Promoting innovation and managing change

Our trouble with jobs: The pay still stinks

Our trouble with jobs: The pay still stinks
Our trouble with jobs: The pay still stinks

There was a lot to like about the December nonfarm payrolls report—except, of course, for those who were making less money at the end of the month than they were at the start.

Easily the most jarring aspect from the Bureau of Labor Statistics' numbers was the drop in hourly earnings. The 5-cent decline brought the average annual increase down to a mere 1.7 percent, indications that while the job market overall may be continuing to improve, the underlying fundamentals still need some work.

Average hourly earnings dropped from $24.62 an hour to $24.57 in December, with the typical paycheck off $1.73 to $850.12, according to BLS data released Friday.

The headline numbers of a 5.6 percent unemployment rate and 252,000 new jobs, while positive enough on their face, didn't tell the whole story of a labor market that still is struggling in some aspects.

Goldman's Hatzius: Wage growth well below 'tightening' level
Goldman's Hatzius: Wage growth well below 'tightening' level

Investors seemed to be taking notice, with stocks reversing a powerful two-day rally Friday as the uneven nature of the economic recovery showed its face in the jobs internals.

Read MoreJob growth jumps but wages fall; rate down to 5.6%

In essence, the market got the worst of both worlds: A headline rate that should keep the Federal Reserve on track to raise rates later this year, but internals that show weak wage growth and economic progress that remains uneven.

"Yes, wage growth continues to be lackluster but the Fed won't likely wait to see the whites of its eyes as the continued drop in the unemployment rate is further signs of labor market tightening and another drop in the participation rate is clear evidence that the slack the doves are relying on is just not there," Peter Boockvar, chief market analyst at The Lindsey Group, said in a note to clients.

By itself, the jobless rate remains largely the beneficiary of a declining labor force. The participation rate fell to 62.7 percent, its worst showing going all the way back to December 1977 and due primarily to a drop of females in the workforce.

Accompanying that move was a 273,000 decline in the total number of Americans in the labor force. A separate measure that counts the underemployed and those who have given up looking for jobs was exactly double the core number at 11.2 percent, though lower by 0.2 percentage points.

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Among Wall Street economists, though, there was little but praise for the report.

Deutsche Bank's chief U.S. economist, Joe LaVorgna, who was expecting 200,000 new jobs for the month, pointed out that 2014 turned in its best year for job creation, at 2.95 million, since 1999.

"In general, this morning's employment report indicates that the labor market continues to improve at a healthy pace, and the unemployment rate remains on track to breach 5 percent by year-end," LaVorgna said in a note to clients.

"As long as monthly payroll gains remain near the current 12-month average (246,000), and the unemployment rate continues to decline at the current pace, wage pressures are sure to become more pronounced over the next several quarters, keeping monetary policymakers on track to begin the process of normalizing interest rates sometime around the middle of the year," he added.

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Several other economists also pointed out that the report could give the Fed impetus to hike rates even sooner than expected. Capital Economics, for once, expects a March hike.

However, the central bank's tendency has been to acknowledge the improving employment picture but focus on inflation pressures, or the lack thereof. Its zero interest rate policy is contingent on low wage growth, so the continued lack gives the Fed room to keep things easy.

One metric worth watching is oil prices. Weekly payrolls in the mining and logging industries, which are a good proxy for energy price pressures, fell 1.2 percent for the month. Retail wages dropped 0.6 percent while the wholesale trade and trade, transportation and utilities sectors both saw 0.3 percent declines. Construction wages grew 1.3 percent while transportation and warehousing rose 1.2 percent.