A worker sews hats at the Unionwear production facility in Newark, New Jersey, U.S. (Photographer: David Williams/Bloomberg)

Why U.S. Wages May Fail to Repeat the Surge That Spooked Markets

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(Bloomberg) -- The biggest jump in U.S. wages since 2009 caught markets and economy watchers off guard last month. Whether the acceleration proves sustainable depends on people like Katie Shank.

The 27-year-old said she lowballed her asking salary at a Seattle employer when she moved from North Carolina last year because she wanted to get hired quickly. Three months later, she quit, and will start a new job Monday with a 14 percent bigger paycheck and more perks.

“This time, I felt comfortable negotiating,” said Shank, who’ll make about $54,000 as a customer-service representative at Spectralux Avionics, a maker of aerospace-communications products in the Seattle suburb of Redmond, Washington. “I knew that if they didn’t want to pay me what I thought I was worth, then I could walk away.”

Stories like Shank’s, while growing, are not yet the norm across America, data and surveys show. Amid solid hiring and the lowest unemployment rate since 2000, worker pay has been stubbornly weak in this expansion. Earnings may accelerate -- likely in fits and starts -- once Americans across the board realize the tightest labor market in years means they can switch more easily to better-paying jobs or feel confident enough to press current employers for a raise.

For now, such reluctance is one reason why it may be premature to conclude that a big wage acceleration is finally under way. January’s surge sparked a plunge in stocks starting Feb. 2 on concern the Federal Reserve would raise interest rates faster than anticipated. Labor Department figures due Friday, less than two weeks before policy makers meet, are projected to show hourly pay growth eased to 2.8 percent in the 12 months through February from 2.9 percent.

“Everyone’s going to be focused on whether or not January was a fluke,” said Ryan Sweet, a Moody’s Analytics Inc. economist in West Chester, Pennsylvania. He said January’s gain was “too good to be true,” and a pronounced pickup in workers’ paychecks “is likely to happen gradually as the labor market tightens further. Don’t expect a sudden and significant acceleration.”

Median estimates of analysts surveyed by Bloomberg also show employers probably added 200,000 workers to payrolls in February -- the same as January -- and the unemployment rate fell to a fresh 17-year low of 4 percent, from 4.1 percent.

Part of the jump in hourly earnings in January was due to a shorter average workweek of 34.3 hours, and wages will cool as that’s projected to return in February to a more typical 34.4 hours. While some economists expect a similar increase in wages in February, it’s partly due to calendar quirks such as a five-week gap between pay periods instead of the usual four, or because the 15th of the month, a payday for many people, fell within the government’s survey week.

None of the analysts surveyed by Bloomberg project an acceleration in wages last month.

What Our Economists Say

Bloomberg Economics was dismissive of the earnings spike because it was narrowly concentrated and likely partly driven by a curtailment of hours worked due to severe winter weather in the first part of the month. The length of the workweek is likely to normalize in February, and average hourly earnings should temper slightly as well.

-- Carl Riccadonna and Yelena Shulyatyeva, Bloomberg Economics

A slower pace of wage growth in February is more likely, according to Michael Hanson, chief U.S. macro strategist at TD Securities USA, because strong readings similar to January were revised away in the past and were followed by unexpectedly weaker prints.  

Even so, economists and investors expect the Fed will raise interest rates this month and at least two additional times this year. Policy makers have cited progress on their goals of maximum employment and 2 percent inflation.

The Fed’s Beige Book, based on anecdotal information gathered by its 12 regional banks, reported that “most districts saw employers raise wages and expand benefit packages in response to tight labor market conditions” when it was released Wednesday in Washington.

Away from monthly gyrations, wages have shown little sign of a breakout. In addition to factors such as retiring baby boomers and the waning power of labor unions, memories linger of widespread job losses during the recession. The voluntary quits rate has been bouncing around 2.1 percent to 2.2 percent since mid-2016.  

Only 39 percent of Americans tried to negotiate pay in their last job, and younger workers more actively than older ones, according to Robert Half International Inc. data based on a survey of 2,700 workers in 27 cities late last year. A separate survey by the Menlo Park, California-based staffing firm released in June showed that while 90 percent of respondents thought they deserved a raise, just 44 percent planned to ask for it last year, although the share was up from 37 percent in 2016.

“For most people, it’s still a difficult conversation to talk about money, no matter how tight the job market is right now, and employers know that,” said Paul McDonald, senior executive director at Robert Half.

Shank agreed to a $47,250 salary when she sought a recruiter’s help to join her first employer in the Seattle area, slightly below what she previously earned. She said she sought a raise at that job, unsuccessfully, after realizing the position required more responsibility than she expected. So she quit Feb. 23. At Spectralux, she’ll get almost $7,000 more and three weeks’ paid time off.

“I learned from the first time, go ahead and tell them up front what you want to get paid and everything,” Shank said.

©2018 Bloomberg L.P.

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