By Sam Fleming
While Federal Reserve chair Janet Yellen appeared dismissive in March when asked whether wage growth was accelerating in the US, some companies and economists claim that pay gains are finally showing signs of life.
Analysts at Goldman Sachs this week said there was now “fairly compelling” evidence of a pick-up in wages based on its pay growth tracker, while last week a survey of midsized companies from the National Center for the Middle Market noted that more than half of companies were considering pay increases in the first quarter — a sharp jump on the prior figure.
The Fed’s own Beige Book, which compiles reports on local economies from the regional Federal Reserve banks, found in April that all but one district had seen increased wages, with a number reporting accelerating growth.
The latest official evidence will come on Friday morning, as the April jobs report from the Bureau of Labor Statistics is released. Economists expect the US to extent its trend of robust hiring, with employers adding another 200,000 jobs in April, slightly shy of the 215,000 figure for March.
The consensus estimate from analysts suggests average hourly earnings will rise 2.4 per cent from a year earlier. That is quicker than the 2.3 per cent reading the previous month but still well below readings of close to 3.5 per cent seen at the tail-end of the last decade.
Still, Torsten Sløk, chief international economist at Deutsche Bank, said enough wage indicators have been firming over the past one and a half years to suggest “something that is brewing underneath the labour market”. He pointed to retail companies lifting minimum wages as part of the “important anecdotal evidence” of a tighter labour market.
Goldman Sachs’s wage tracker is growing at 2.5 per cent on the year, the quickest pace since the recovery, with the investment bank finding evidence that sectors with low unemployment are experiencing stronger pay growth than those with higher joblessness.
Michael Norris, chief executive for healthcare at facilities services company Sodexo North America, said on a panel last week that pay for staff in his field was going up “dramatically”, especially in areas where science and maths skills were needed. “If you are trying to attain and retain talent in hospitals and in the medical field and things like that, wages are going up.”
For her part, however, Ms Yellen said that official data do not offer “any convincing evidence” of a pick-up in wage growth. The conclusion served as another sign that the Fed chair is in no hurry to tighten policy further following its interest-rate increase, especially given her accompanying suggestion that a pick-up in inflation early this year was likely to prove fleeting.
John Robertson, an economist at the Atlanta Fed, is also cautious. Average hourly earnings and the economic cost index produced by the Bureau of Labor Statistics are both “pretty subdued”, he said. While the Atlanta Fed’s wage growth tracker is rising more than 3 per cent compared with last year, it tends to run higher than other measures because it focuses on people continuously in employment. “They are getting solid wage increases but it is not accelerating,” he said.
In Washington, Fed officials are likely to seek more conclusive evidence before deciding that wage growth is pointing to eroded spare capacity and inflationary risks. Ms Yellen has suggested that there are still elements of slack in the jobs market, with 6.1m people working part-time who would like a full-time job, for instance.
And a recent rise in the US participation rate may be taken as an encouraging sign that stimulative borrowing costs are starting to lure people off the sidelines and into the active labour force. The Fed would be wary of taking risks that would interrupt that trend.
Elise Gould, an economist at the Economic Policy Institute, suggests that the rapid increases in workers returning to the labour force in search of jobs over the past six months could further delay wage acceleration. “At this point, wage growth remains below target levels consistent with the Fed’s 2 per cent inflation target and trend productivity growth,” she said in a note.