Wage growth is picking up across America — and even non-oil states are getting in on the action.
The median U.S. worker benefited from a 3.4 percent year-on-year increase in wages in July, only marginally lower than the bumper 3.6 percent the previous month, which was the fastest pace of wage growth since January 2009, according to the Federal Reserve Bank of Atlanta's wage growth tracker.
Workers in states with a large commodity sector (which represent around 13 percent of national employment) enjoyed bumper wage gains between 2011 and 2014, before median pay growth fell last year amid the oil price correction.
In a research report published on Monday, equity analysts at Macquarie Capital Markets highlight the broad-based nature of U.S. wage gains. They demonstrate how the drag on national wage growth from weak labor markets in the oil states — Alaska, Louisiana, Montana, New Mexico, North Dakota, Oklahoma, Texas, West Virginia, and Wyoming — has loosened in recent months, citing Bureau of Labor Statistics' average hourly earnings data.
The Macquarie analysts, led by David Doyle, also show how there has been a decisive acceleration in the share of non-oil states with wage growth north of 3 percent.
The analysts cite three reasons in favor of the view that wage growth in oil-states, which stood at 1 percent in July, will soon pick up — especially in the mining sector — a fillip for national headline wage growth.
We also believe the drag from oil-states should lessen as there is growing evidence of a bottoming in activity levels. i) Mining & logging industry employment as a share of total employment has declined to its lowest level in over a decade, ii) jobless claims in oil states have flattened out after rising for much of 2015 (iii) energy investment is near multi-decade lows, but appears to have reached a bottom.
Signs of higher wage growth and a tighter labor market more generally will no doubt be seized upon by Fed hawks as attesting to the prospect of a tick up in underlying U.S. inflation in the coming months.
For businesses, there's a medium-term risk here: an increase in real hourly pay, in the absence of productivity and volume growth, will eat into profit margins. Still, there's some evidence that a tightening labor market could, in theory, drive productivity higher.