The FINANCIAL — American workers are starting to see distinct wage growth after years of tepid gains, signaling that a tightening job market may be putting pressure on employers to sweeten pay packages, according to Nasdaq.
The gains could give Federal Reserve officials more confidence to begin raising short-term interest rates starting this month after holding them near zero for seven years.
Employers have been posting record numbers of job openings in recent months, and the unemployment rate has dropped to 5%, within a hair of 4.9%, the Fed’s median estimate of full employment. And yet worker pay barely budged for much of the recovery, a phenomenon that has confounded economists.
That may be changing. On December 2, the Labor Department released new productivity and compensation figures showing that inflation-adjusted hourly compensation for the nonfarm business sector grew 3.4% in the third quarter compared with the same quarter a year ago, the second-largest jump since the third quarter of 2009. That comes after hourly compensation grew 3.3% in the second quarter over the same quarter of 2014.
Higher pay has also taken hold in the manufacturing sector, where real compensation climbed 3.5% in the third quarter from a year ago after a 2.5% increase in the second.
The wage growth comes as productivity also shows signs of improvement. Productivity grew at annualized rates of 2.2% in the third quarter and 3.5% in the second.
Other wage measures have also shown improvement. Average hourly earnings of private-sector employees were 2.5% higher in October than the previous year, the largest annual increase since July 2009, according to a separate Labor Department report.
Compensation figures in Wednesday’s report include both wages and benefits. The figures can be volatile and subject to significant revisions.
Still, these early signs of fatter paychecks have grabbed the attention of Fed policy makers, who will gather Dec. 15 and 16 to decide whether the economy is healthy enough for higher interest rates. Fed Chairwoman Janet Yellen said Wednesday that she was hopeful wages had finally broken out of their rut. That, in turn, could help push inflation toward the Fed’s 2% target.
“Until recently, labor compensation had grown only modestly,” she told the Economic Club of Washington, D.C., in a speech. “More recently, however, we have seen a welcome pickup in the growth rate of average hourly earnings for all employees and of compensation per hour in the business sector.”
That could suggest the labor market is returning to form, she added, even though “it is too soon to conclude whether these more rapid rates of increase will continue.”
“All of a sudden, there appears to be an upward trend in wages,” said Stephen Stanley, chief U.S. economist at Amherst Pierpont Securities in a note to clients. “I have been adamant for the better part of a year that even though the aggregate statistical data have failed to show it, wages were rising in a tightening labor market. Now, we are finally beginning to see it.”
Mr. Stanley said he expected wages to continue rising as labor markets tighten further.
Jesse Hurwitz, a U.S. economist at Barclays called Wednesday’s compensation figures “encouraging.”
“Labor market tightness may finally be starting to lead to an uptick in wage growth,” he wrote in a note to clients. ” However, this indication is tentative as of yet.”
Pressure to raise wages has started to weigh on some of the country’s biggest employers. Wal-Mart Stores Inc. raised its minimum pay to $9 in April and plans to boost it to $10 next year. Last month, the United Auto Workers struck new labor agreements with the top three America auto makers that guarantee pay increases as well as bonuses and retirement incentives for some workers.
And executives with the Cheesecake Factory Inc. chain of restaurants told analysts last month that they were anticipating wage pressure of 4% to 5% next year driven both by higher minimum wage laws in some states—including California, where the firm is based—and by competition for workers.
“What the rest of the industry is seeing, what we are seeing as well, is just general wage rate pressure,” said Doug Benn, the company’s finance chief. “Being able to be fully staffed in an environment where there is an alternative—many alternatives for workers to go other places—it’s been a challenge.”
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