More Gauges Tell Same Story: Lasting U.S. Wage Growth Remains Elusive

Average hourly earnings were only the latest indicator of weak pay gains.
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JPMorgan's Glassman Expects Better U.S. Wage Trends

Four different measures are all telling the same story: While America's workers keep getting hired at a solid pace, they're having difficulty finding sustained growth in their paychecks.

First, January set a disappointing tone for wages at the start of 2017. Average hourly earnings rose 2.5 percent from a year earlier, the slowest since August. That's even as employers added the most workers in four months. 

A second measure shows how the January weakness is an extension of the trend in other earnings gauges for late 2016. In December, incomes adjusted for inflation and taxes posted the smallest year-over-year gain in almost three years. Shoppers would have welcomed more cash to splurge on holiday gifts that month. 


Two additional gauges on fourth-quarter data were hardly better. Year-over-year growth in wages and salaries cooled for a second straight period, according to the employment cost index released last week. Separately, Thursday's labor productivity report showed real hourly compensation growth of 1.1 percent, the smallest advance in two years.

The breather in wage growth indicates that the job market isn't really all that tight yet.

Millions of people who want full-time employment are able to find only part-time work, though the number is slowly declining. In another potentially worrying sign, the quits rate—which Fed Chair Janet Yellen has highlighted as a barometer of worker confidence in being able to find better-paying jobs—declined in December, to 2 percent, the first drop since April.

Anecdotal reports also show that wage gains aren't yet broadening. Workers with in-demand skills can command better compensation because they're in short supply in such industries as technology. While less-qualified people are also getting jobs, employers are still able to limit their earnings. Some economists also argue that recent hiring gains have come more frequently in low-paying sectors.

As employment prospects improve, more Americans are returning to the labor market in hopes of finding work, with fewer giving up and dropping out of the labor force. That pushes up the unemployment rate. For wages to accelerate, such slack will need to diminish further, with strong hiring helping to shrink the pool of available workers. 

Since September 2015, the jobless rate has been hovering in the 4.5 percent to 5 percent range that Federal Reserve officials assume is the lowest sustainable level, with a median of 4.8 percent. Only in three months since the recession ended in 2009 has the rate fallen below that median threshold; staying below it for a longer period would help generate an enduring liftoff in wages.

"Unemployment is not that far below full-employment levels at 4.8 percent, so companies do not need to pay more in wages to retain workers," Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York, said in a note. "The economy is at full employment and has not moved significantly beyond full employment that could stoke the fires of inflation."

Once the job market is truly tight, worker pay will accelerate for more Americans.

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