Wage Growth Finally Beats Rent Growth

Wage Growth Accelerates

Wage growth is important because, at this point in the cycle with the labor market tightening and inflation modest, workers have a chance to get real pay increases. 

Also, last year we saw the Fed raising rates partially in reaction to wage growth even though it hasn’t translated into higher inflation.

In the first part of the cycle, unemployed workers got jobs. Lately, discouraged workers are coming off the sidelines and looking for work. It’s interesting that these people coming off the sidelines helps prevent wage growth from getting out of control. But they are coming off the sidelines because wages are increasing. 

They are limiting the pay growth they want. It’s also notable that when employees are desperate for workers, they increase on the job training for those with little experience and those who haven’t been working for a while.

Wage Growth - Average monthly hourly earnings growth in January was 0.1%. 

It missed estimates for 0.3% and last month’s reading of 0.4%. Average yearly hourly earnings growth was 3.2% which met estimates and was the same as December. Even though growth slightly decelerated, the average workweek was stable at 34.5 hours which met estimates.

Probably because of comps and rounding issues, weekly wage growth accelerated from 3.34% to 3.48%. Weekly wage growth has only been quicker in this expansion for 3 months in 2018. Growth peaked at 3.63% in October 2018. 

Last year, February weekly wage growth increased from 2.81% to 3.17% which means this might be a case where February 2019 wage growth falls from the previous month, but the 2-year growth stack increases.

Wage Growth - Real Wage Growth: Rent Costs

We don’t know what real wage growth in January was yet because the January CPI reading hasn’t come out. It will be released on February 14th. 

It won’t be affected by the potential shutdown because the BLS reported job numbers during the shutdown and because the shutdown deadline is February 15th. In December, CPI was 1.9% and core CPI was 2.2%. Markets are hoping for similarly low inflation.

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