Companies Can't Hold the Line on U.S. Wages Much Longer
Workers are leaving their jobs at a faster rate, confident they can obtain bigger paychecks elsewhere.
The Fed is watching wages closely.
Photographer: Brendan Smialowski/AFP
Inflation is accelerating toward the U.S. Federal Reserve’s target, which should lead to a long-awaited pickup in wages. But if wage growth remains sluggish, even a modest overshoot of inflation could weigh on consumer spending.
The April jobs report revealed that wage growth remains tepid, rising just 2.6 percent from a year earlier. This occurred even as unemployment sunk to 3.9 percent, a level the Fed believes is consistent with an economy operating beyond full employment. Theoretically, such tight labor markets should foster higher wages as firms compete for workers. Yet, so-called real wage growth, which is what workers get after taking into account the Fed’s preferred measure of inflation, decelerated to an estimated 0.6 percent rate in April.