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Wages Will Set the Tone for Fed
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Loading...Friday’s jobs report shouldn’t prevent the Federal Reserve from raising interest rates at next week’s meeting. Economists polled by The Wall Street Journal expect that nonfarm payrolls rose by 197,000 in February, slightly better than its average over the previous three months. The unemployment rate is estimated to have edged down one-tenth of a percentage point to 4.7%. It has held at or below 5% for 17 consecutive months.
Wage growth is the key metric to watch this time. It was a rare disappointment in January’s data. In that report, average hourly earnings rose just 2.5% from a year earlier, the weakest growth in 10 months. And that came even as many states boosted their minimum wages.
January might prove to have been an anomaly. Wage growth averaged 2.7% in the second half of last year, the strongest rate over a six-month period since 2009. That was also much higher than the 2% annual pace throughout much of the recovery. Higher wages along with steady job gains and more people quitting their jobs suggest companies are being forced to compensate their employees more, not only to retain people but also to attract new talent. That should help keep pushing overall inflation higher and give the Fed more confidence in raising rates at a more regular pace.
There is evidence that wages are rising even more rapidly than the Labor Department’s data would suggest. The Federal Reserve Bank of Atlanta maintains its own wage-growth tracker, which monitors wages of continuously employed people while ignoring those of people who jump in and out of the workforce. This metric suggests wage growth has been higher than that of average hourly earnings.
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