One of the few elements of May's disappointing jobs report that did manage to meet economists' expectations was wage growth.
Average hourly earnings rose 2.5 percent year-over-year, a rate of growth in line with their six-month moving average.
And a team led by RBC Capital Markets LLC Chief U.S. Economist Tom Porcelli provides some context showing that workers’ earnings on a weekly basis, adjusted for inflation, have been increasing at an especially fast clip this decade.
“Despite the rampant contention that wages (especially for non-supervisory workers) have ‘stagnated’ for decades, the reality is very different,” writes Porcelli. “Indeed, the current decade is on pace to be the best for annual real production worker wage growth since at least the mid-1960s (the extent of the data).”
With initial jobless claims continuing to plumb low levels, quit rates rising, job openings relatively abundant, and anecdotal evidence like the Federal Reserve’s Beige Book suggesting that labor markets are tight across the nation, a continued pick-up in wage growth seems likely, according to Porcelli.
In addition, as he notes, there hasn’t been a recession in the 2010s.
Importantly, real weekly wage growth has been flattered by persistently low inflation. There is something of a chicken-egg relationship between wage growth and inflation: when prices rise at a fast clip, workers might demand higher nominal wage increases to keep up their standard of living. Increased take-home pay, all else equal, entails that more money is being thrown at the same amount of consumer goods and services, which tends to put upward pressure on prices.
Nonetheless, "the lack of appreciation for the recent performance of wages from an historical standpoint" is surprising, the economist concludes.