A key solution to moderate wage increases this summer

A key solution to moderate wage increases this summer

A measure of wages and benefits that Federal Reserve officials are watching closely as they try to gauge the heat of a labor market that grew at a moderate pace during the summer.

employment cost indexThe Labor Department’s quarterly inflation measure, which tracks changes in wages and benefits, climbed 1.1 percent in the third quarter of 2023 compared with the previous three months. That was slightly faster than the 1 percent expected by economists and higher than the previous 1 percent reading.

Still, that pace of development is a series slower than sharp quarterly profits In 2022. And on an annual basis, wage growth remains slow: The employment cost measure rose 4.3 percent on an annual basis, down from 4.5 percent in the previous report.

The index grew an average of 2.2 percent annually in the decade before the pandemic, underscoring that although the pace of wage growth is slowing, the pace remains fast today.

Rapid wage growth is good news for families, but they could pose a challenge for economic policymakers. Federal Reserve officials often worry that it will be difficult to completely eliminate inflation if wage gains are rising rapidly. Companies that are paying workers higher wages may try to charge more to cover their costs.

Fed officials are meeting this week to discuss what to do next with interest rates, and are widely expected to keep borrowing costs steady at the conclusion of their two-day meeting on Wednesday. To slow inflation, they have already raised interest rates from near zero to between 5.25 and 5.5 percent in March 2022.

Higher rates make it more expensive to borrow money to buy a home, buy a car, or expand a business. As companies hire less enthusiastically and demand decreases, wage increases should slow and companies should find it more difficult to raise prices without losing customers. That chain reaction is expected to keep inflation in check.

But the labor market downturn has been unexpectedly turbulent. Jobs gains have slowed somewhat, but remain faster than what many economists had expected after so much Fed action. That’s why Fed officials are watching wages so closely.

If wage growth is more modest, even though companies are hiring, it suggests that there is continued job growth due to an improving supply of applicants, and the labor market is still returning to equilibrium.

The logic is simple: If the job market were running hot, companies would be paying more and more as they tried to acquire the employees they needed from each other. Due to this, salary benefits will continue to increase rapidly. If it were cooling toward more normal levels of tightness, economists would expect wage growth to slow.

Another closely watched measure of wage growth is the average hourly earnings index that is released each month as part of the Nonfarm Payrolls report. showing continued softness,

That gauge is useful because it comes up frequently, but it’s also sensitive to data quirks. This moves around as the composition of the workforce changes. For example, if many low-wage workers hold a job, the measure of hourly earnings may be lower.

Given this, Fed officials closely monitor the employment cost index, which avoids some of the data loss that affects other wage measures.

Source link

Leave a Comment

Your email address will not be published. Required fields are marked *

93 − 87 =