Arrow-right Camera
The Spokesman-Review Newspaper

The Spokesman-Review Newspaper The Spokesman-Review

Spokane, Washington  Est. May 19, 1883
Clear Night 61° Clear
News >  Business

Americans start to see enduring wage gains in tighter job market

Miners, construction workers, teachers and retail employees saw their pay rise in December, while hourly earnings rose almost 3 percent last year. (Keith Srakocic / AP)
Miners, construction workers, teachers and retail employees saw their pay rise in December, while hourly earnings rose almost 3 percent last year. (Keith Srakocic / AP)
By Shobhana Chandra Bloomberg

After six straight years of annual job gains topping 2 million, America’s labor market is as tight as ever, and it’s entering the next phase: an enduring pickup in wages.

Average hourly earnings jumped by 2.9 percent in the 12 months through December, the most since the last recession ended in June 2009, according to the Labor Department’s employment report released Friday in Washington. Workers in almost every category, from mining and construction to retail and education, saw paychecks rise from November. The 4.7 percent jobless rate remains close to a nine-year low, even with a tick up last month.

Job and wage prospects would improve even more following any successful legislation aimed at stirring growth, such as tax cuts and infrastructure investment, as President-elect Donald Trump has promised.

“The trend is clearly moving toward firmer wage growth,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “The labor market is tight and getting tighter. I expect to see continued acceleration in wages this year.”

The encouraging news on worker pay underscores the next stage of the labor-market recovery, which was defined by years of wage stagnation amid strong growth in payrolls. Now, the economy is adding jobs at a slower pace and measures of slack are diminishing, meaning labor shortages may become more common. That makes a sustained acceleration in paychecks critical to boosting household income and supporting spending.

Some cooling in the job market was apparent in the latest report. Payrolls climbed by 156,000 in December after 204,000 in November, and the participation rate increased to 62.7 percent, which may continue as more people are drawn into the labor force and find work. Other measures of slack improved, including a drop in the number of Americans working part-time who would rather have a full-time position.

Calendar quirk

The December increase in wages followed a 2.5 percent advance the prior month. The improvement may have, in part, reflected the unwinding of a calendar quirk that muffled the November tally. Since the 15th of the month fell within the employment survey week, increases in bi-monthly pay are more likely to have been captured.

Even so, year-over-year hourly earnings have accelerated in three of the past four months, and wages were up 0.4 percent from November, matching the fastest pace since last January.

Among industries that posted the biggest hourly wage gains were mining and logging, rising 0.8 percent from the previous month, and retail, up 0.6 percent. Construction workers saw earnings increase 0.4 percent, as did Americans in leisure and hospitality.

Production workers

Not everyone is getting excited just yet. Barclays Plc economists Rob Martin and Michael Gapen pointed out the more modest 2.5 percent year-over-year December gain in earnings for production and non-supervisory workers, which exclude managers.

“Although the solid wage numbers in December are welcome, this month’s data followed several months of relatively weak prints and do not change our view on wage growth,” Martin and Gapen said in a note. “We continue to expect modest wage gains over the next year, as we see little slack in labor markets and expect the unemployment rate to continue its long-term trend decline.”

The pickup in wages, sustained over time, would also feed into broader price pressures. That would be consistent with the view that inflation continues to move toward the goal of the Federal Reserve, which raised interest rates last month and expects to lift them three times this year.

The strong wage gain for 2016 “strengthens the position of policy makers that think the Fed needs to get on with its normalization of official rates,” Joe Carson, director of global economic research at AllianceBernstein LP, wrote in a note.

Potential fiscal stimulus from Congress and the new administration in 2017 “should raise expectations of more wage and price gains. In short, the Fed is falling behind the curve and even more so if fiscal stimulus is enacted soon,” he said.

The Spokesman-Review Newspaper

Local journalism is essential.

Give directly to The Spokesman-Review's Northwest Passages community forums series -- which helps to offset the costs of several reporter and editor positions at the newspaper -- by using the easy options below. Gifts processed in this system are not tax deductible, but are predominately used to help meet the local financial requirements needed to receive national matching-grant funds.

Active Person

Subscribe now to get breaking news alerts in your email inbox

Get breaking news delivered to your inbox as it happens.