If the unemployment rate were so low and the U.S. economy so strong, workers and job-seekers wondered over the past year, why weren’t wages climbing faster?
Now, at last, they’re picking up momentum. Average hourly earnings rose 2.9 percent to $27.16 in the 12 months through August, the Bureau of Labor Statistics reported Friday. That’s the fastest since May 2009, and 20 basis points above the previous post-recession high of 2.7 percent in December, according to economists at the investment bank Morgan Stanley.
The gains, coupled with a narrowing under-employment rate, show the U.S. labor market has absorbed much of the slack created during the Great Recession of 2007 to 2009 and suggest earnings may now increase more quickly. They also signal that the economic benefits of tax cuts driven by the GOP haven’t been overpowered by President Trump’s escalating import tariffs.
“You would have thought wage inflation would be picking up earlier in the expansion,” with unemployment of 3.9 percent already below its estimated natural rate, Bank of America economist Joseph Song told the Washington Examiner. “We’re now starting to see that tight labor market finally start to put some upward wage pressure.”
Indeed, salary growth may reach 3 percent by the end of this year and 3.25 percent in the first half of 2019, Song said. Bank of America expects the jobless rate to drop even further, he said, which would indicate “less and less slack in the economy” and the likelihood of a sustained pickup in earnings gains.
By the end of next year, pay growth may reach as high as 3.5 percent, said Michael Gapen, an economist with British lender Barclays Plc.
“The move would come later than we expected by about 18 months, and one month does not make a trend, but we do see this report as containing nascent evidence of faster growth in wages,” Gapen said in a note to clients.
In August, salary growth accelerated in eight of the 13 major sectors, noted Morgan Stanley economist Ellen Zentner. “The largest gains were seen in information services and retail trade,” where the 12-month increase reached 3.4 percent and 3.2 percent, respectively, she said.
Middle-wage industry wages, meanwhile, rose 2.4 percent, and high-income sector wages climbed 3.5 percent. Gains in the two areas are an “important factor in moving the needle on average hourly earnings” since they account for a larger portion of the total than low-wage sectors, Zentner explained.
Potential obstacles are growing, however. Corporate executives, economists, and even some GOP lawmakers have warned that Trump’s wide-ranging tariffs — including double-digit duties on steel and aluminum and 25 percent levies on $50 billion of Chinese goods — may curb growth, particularly in manufacturing.
This week, the government completed the public-input period necessary to impose duties on another $200 billion in Chinese goods and Trump said Friday that tariffs on an additional $267 billion in imports are “ready to go.”
