The long-awaited pickup in U.S. wage growth may have finally arrived.
Average hourly earnings rose 2.9 percent in August from a year earlier, the sharpest jump since June 2009, the Labor Department said Friday.
The rise last month means worker pay is finally increasing at a noticeably higher pace than the 2.3 percent yearly inflation measure tracked by the Federal Reserve. And that gives households a little more breathing room in their monthly budgets.
Until now, pay increases have accelerated, but gradually. They’ve averaged about 2.7 percent in 2018, up from 2.5 percent the prior two years.
Economists have expected yearly pay increases to hit 3 percent since unemployment dipped below 5 percent in 2016 as more employers began struggling to find workers.
Workers looking for a bump in pay shouldn’t break out the champagne just yet. Experts aren’t sure whether the rise last month will continue.
Dean Baker, co-founder of the Center for Economic and Policy Research, says “it is too early to assume a clear trend,” noting annual pay increases reached 2.8 percent in July 2016 only to fall back.
But Andrew Chamberlain, chief economist of Glassdoor, the giant job posting and employee review site, says: “I definitely don’t think it’s a blip. The signs are clear … you’re seeing a steady buildup of wage pressures.”
Though fatter paychecks are generally a positive for workers, they also could prod the Fed to raise interest rates more rapidly to head off a spike in inflation. That could make adjustable-rate mortgages and credit card debt more expensive and cool off the stock market along with workers’ 401(k) plan holdings. Higher rates make less risky bonds relatively more appealing than stocks.
One factor that has curtailed salary increases in Labor’s monthly jobs report is that highly paid baby boomers are retiring while lower-wage millennials are entering the labor market.
The Federal Reserve Bank of Atlanta, which tracks the same workers over time, reported a 3.3 percent annual gain in wage growth in July, Chamberlain notes.
Now, Labor’s more closely watched report is also starting to reflect bigger advances in pay as the job market has tightened substantially in recent months. The number of job openings in June, at 6.7 million, outpaced the 6.6 million unemployed Americans, Labor Department figures show. Employers increasingly “are starting to pull talent away from the competition,” Chamberlain says.
Job switchers, in fact, are seeing the biggest benefits, with annual wage gains of 3.8 percent in July, compared to 2.9 percent for job holders, Chamberlain says, citing the Atlanta Fed figures.
Paychecks are increasing more sharply in some industries than others.
It’s no surprise that August pay was up 4.7 percent from a year ago among financial firms, 3 percent in professional and business services, and 3.4 percent in information. The latter category includes media and telecommunications companies, film studios and some tech workers. Construction, grappling with a severe worker shortage, boosted paychecks 3.3 percent.
Yet wages were also up 3.2 percent in leisure and hospitality, which includes lower paid restaurant and hotel workers, and retail. Workers in those sectors are less inclined to move for jobs, forcing employers to draw from a more limited pool and bid up to attract them, Chamberlain says. Those employees also have benefited from minimum-wage increases in 18 states this year, he says.
Yet manufacturing, which has been struggling to hire high-skilled workers, doled out yearly pay increases averaging just 1.8 percent. Baker says many manufacturers may not be adept at poaching workers from rivals after having their pick of workers for years as factories closed and jobs moved overseas.
There was other good news for workers last month. Hiring rebounded in August, the government reported Friday, as employers added 201,000 jobs and the labor market continued to defy worker shortages and U.S. trade battles.
