Economists caution against reading too much into any one month’s worth of jobs data, but labor market observers say August employment data that shows wage growth of close to 3 percent could be the real deal.
“I don't think it’s just a blip. We’ve seen steadily building pressure over the past year on wages from multiple data sources,” said Andrew Chamberlain, chief economist at Glassdoor.com. “The strong pay growth is consistent with what we see in our figures.”
The 2.9 percent annualized increase in pay growth was the highlight of what economists deemed an altogether positive report from the Bureau of Labor Statistics, which found that hourly earnings went up by an average of 10 cents last month. The economy added a total of 201,000 jobs in August, keeping the topline unemployment rate steady at 3.9 percent, even though the last two months’ worth of job gains were revised down by 50,000 jobs.
Other sources confirmed that the labor market still has momentum. Payroll processor ADP reported that 163,000 private-sector jobs were added in August — a drop from the 219,000 added in July — with mid-sized businesses responsible for the lion’s share of the growth.
Ahu Yildirmaz, vice president and head of the ADP Research Institute, said the overall trends were positive. “This is still a very healthy number. It’s still exceeding what is needed to keep up with population growth,” she said. “The labor market shows no signs of stopping.”
BLS data shows that the biggest gainer was the professional services sector, which added 53,000 jobs in August. According to Marc Cenedella, CEO of Ladders, an online jobs platform that focuses on the $100,000-and-up salary market, more workers in a wide sector of white-collar fields like sales, marketing, accounting and technology can command higher pay.
“More jobs are paying $200,000 or more. The data support what we see anecdotally — companies are having to pay up,” he said.
Some economists expressed concern that this good news on worker pay could eventually start cutting into corporate profits and raising inflation — especially if higher labor costs come on top of higher input costs and operational expenses that are a consequence of the White House's administration’s protectionist trade policies.
“The 2.9 percent reading was above expectations and close to the 3 percent ‘red line’ that we have been talking about,” said Scott Wren, senior global equity strategist for the Wells Fargo Investment Institute.
Wage growth much higher than that would likely prompt speculation that the Federal Reserve would increase interest rates more rapidly, a prospect that tends to throw cold water on the stock market.
“Anything that crimps margins at this point or is construed to feed into general inflation, and what the Fed might do about it, is what will drive the market,” Wren said.
“The main issue in the labor market today is when we’ll start having wage growth accelerate more rapidly,” Yildirmaz said. “That’s the time when firms will start struggling to keep up the pace of hiring.”
Already, Cenedella said immigration and visa restrictions were pushing up demand — and pay — for professionals like software engineers.
Glassdoor’s Chamberlain predicted that the hunt for qualified workers will increase pay more broadly. “It’s inevitable that supply and demand are going to start pushing up wages. I do think today’s wage gains are sustainable,” he said.
“Employers are running out of people to hire and that’s encouraging them to poach workers from their competition,” he said. “People switching jobs are the ones getting the big pay raises.”