There were not any major reports on the economy released this morning so today we will instead take a look at recent trends in U.S. wage growth. First, the latest job report from the Bureau of Labor Statistics (BLS) showed that average hourly earnings for American workers lifted by 2.48 percent over the past twelve months. That is near the high-end of the range for the current economic recovery but still well-below the annual wage growth seen prior to (and even during) the “Great Recession.” Other measures of wage inflation, though, are a bit more encouraging. For example, a net 26 percent of small business owners surveyed by the National Federation of Independent Business (NFIB) in May said that they have increased worker compensation during the last three months, one of the highest readings of the recovery. Reported plans to boost compensation in the next three months are also relatively high and this is not surprising since measures of hiring plans, job openings, and difficulties finding qualified applicants are all elevated, a sign of tightening labor markets. Further, the Federal Reserve Bank of Atlanta’s hourly wage tracker suggests that compensation gains are not just accelerating but also occurring for a wide array of Americans (first two charts below). However, earnings outlooks are somewhat less optimistic because a new survey conducted by the New York Fed found that the median consumer expectation for wage growth over the next twelve months is just 2.15 percent. Most of the pessimism about earnings potential, though, is found among younger Americans without a college education (last two charts below). Altogether, a continued acceleration in wage growth across the country could hurt businesses’ profit margins and in turn contribute to building U.S. inflation pressures, something officials at the Federal Reserve are likely to pay close attention to.
Sources: BLS, NFIB, FRBA, FRBNY, Calculated RiskPost author: Charles Couch