Wage Pickup in U.S. Renews Hope Long-Awaited Liftoff Is Near
(Bloomberg) -- The surprise August pickup in U.S. wages offered hope that earnings are finally pivoting away from the mediocre pace that’s marred an otherwise strong job market.
Average hourly earnings for private workers increased 2.9 percent in August from a year earlier, the most since the recession ended in mid-2009, a Labor Department report showed Friday. That exceeded all estimates in a Bloomberg survey and the median projection for 2.7 percent. Nonfarm payrolls also rose from the prior month by an above-forecast 201,000.
Advances across sectors from manufacturing to retail added to signs that worker pay may finally be catching up to other aspects of the job market, such as hiring at a solid clip, an unemployment rate near the lowest since the 1960s, and more vacancies than job-seekers. Investors had already locked in an interest-rate hike by the Fed this month, and Friday’s figures made them more convinced another increase is coming in December.
“The trend is definitely upwards and I think it’s going to be a slow grind higher,” said Josh Wright, chief economist for recruiting-software firm iCIMS Inc., who sees wage gains hitting 3 percent within the next few months. “The fact it’s broad-based is one of the reasons that supports the idea that this is sustainable.”
Lackluster wage gains, a weak spot throughout the current expansion that’s now in its 10th year, have been a major blemish on an economy that President Donald Trump has called the strongest ever, with economic growth currently being juiced by his tax-cut stimulus. The August data brought some cheer, as the annual gain in average hourly earnings followed a 2.7 percent advance in July. The monthly advance of 0.4 percent was also the biggest since December.
“We are in an economic boom,” Larry Kudlow, director of Trump’s National Economic Council, said in a Bloomberg Television interview Friday. “When you get these conditions of boom, more people are going to come to work, they’re going to be rewarded by higher wages.”
The unemployment rate was unchanged at 3.9 percent, while another measure showed diminishing labor-market slack: The U-6, or underemployment rate, fell to a 17-year low of 7.4 percent. That gauge includes part-time workers who’d prefer a full-time position and people who want a job but aren’t actively looking.
Wages grew across major categories, with some of the biggest contributions to the acceleration coming from durable-goods manufacturing and professional and business services. Wholesale trade, education and health services, non-durables manufacturing and retail all posted solid gains as well.
What Our Economists SayLabor slack has diminished to a degree that is finally having a greater impact on wage pressures. In turn, it will signal to policy makers that the economy is operating in the vicinity of full employment, thereby vindicating those Fed officials who have suggested that the neutral unemployment rate has drifted down relative to previous cycles.
-- Carl Riccadonna, Yelena Shulyatyeva and Tim Mahedy, Bloomberg Economics
Read the full report from Bloomberg Economics.
The 3.2 percent annual jump in retail wages is particularly notable because it’s among the lowest-paying sectors in the economy, and may be a sign it’s starting to respond to the tightening labor market again following a slowdown in 2016 and 2017.
Growth in average hourly earnings for production and nonsupervisory employees -- which account for 82 percent of the private-sector workforce -- accelerated to 2.8 percent, matching the highest level of the expansion. Average weekly hours for such workers were also higher from a year earlier, boosting growth in their average weekly earnings to 3.4 percent.
The employment figures were “strong,” Cleveland Fed President Loretta Mester said Friday in an interview on the sidelines of a conference in Boston. “I continue to be a supporter” of gradual interest-rate increases, she added.
Economic theory traditionally holds that a tight labor market would spur wages and thus inflation. Explanations for tepid pay gains have included globalization, automation, retiring baby boomers replaced by lower-paid workers, low productivity and declining labor-union membership.
Workers are seeing their earnings improve in many other parts of the world, too, according to a recent research note from Goldman Sachs Group Inc. analysts led by chief economist Jan Hatzius. Wage trackers across large parts of the developed world, including the euro area, Japan, Canada, and Australia, “show a distinct trend toward acceleration,” they wrote.
But monthly gains in Americans’ pay have shown acceleration in the past, only to be revised down, and it remains to be seen if the latest improvement endures.
“We’ve had these head-fakes before,” said Omair Sharif, an economist at Societe Generale SA in New York. “Maybe I’m just jaded at this point.”
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