Wages rose at a brisk pace in the year to March, a sign that labor shortages are driving employers to raise wages to retain and attract workers — and a sign that higher wages could keep inflation high, adding pressure on the Federal Reserve as it is perceived. How much and how quickly the economy calms down.
The central bank is trying to slow demand to a more sustainable pace at a time when inflation is running at its fastest pace in 40 years. Officials began raising interest rates in March and suggested they could raise them by half a percentage point in May – double what is usual. Making money more expensive to borrow and spend can eventually slow consumption and employment, reducing wages and price growth.
Friday’s employment report is likely to support the case for the massive increase.
A report released Friday showed that wages rose 5.6 percent over the past year, a much faster pace than the 2 to 3 percent annual wage gains that were typical during the 2000s. At the same time, the unemployment rate fell to 3.6 percent from 3.8 percent. Unemployment is now just above the half-century low it reached before the pandemic.
“The one-year wage figure is still very strong; it kind of ends any discussion about whether the unemployment rate gives an honest and reliable signal about the labor market,” said Michael Feroli, JPMorgan’s chief US economist. “The labor market is tight.”
While a strong labor market has given policy makers confidence that they can slow the economy somewhat without causing an outright recession, such rapid wage gains can also perpetuate price increases by helping to maintain consumer demand and prodding firms to raise prices. Prices while trying to cover higher labor costs.
“The promise of higher wages is a great thing,” Federal Reserve Chairman Jerome H. Powell said after the central bank’s decision to raise interest rates last month in an attempt to cool the economy. But the increases “are taking place at levels well above what would correspond to 2 percent inflation, our target, over time.”
With the March numbers, wages are increasing at a faster rate during the year than they were when Mr. Powell made his observation.
The rapid rise in wages comes as employers compete for a limited pool of workers. There are roughly 1.8 jobs available for every unemployed worker, and companies complain about the difficulty of hiring across a range of skills and industries.
“If the situation remains tight, the spiral of wages and prices will only accelerate from here,” Mr. Feroli said. “I think they probably think it’s unsustainable,” he said of the Fed.
Over the past year, wages have increased significantly for its employees Entertainment and hospitality industry, which jumped 14.9 percent, while workers in transportation and warehousing also took in double-digit salary gains. These numbers are for workers who are not supervisors.
wages Significantly increased in leisure and hospitality again last month, while wages also rose sharply for workers in the financial and durable goods industries.
While rapid wage growth is a boon for many workers, families are finding that their salaries, while greater, are no longer buying as much as higher prices. Wage gains are not keeping pace with inflation for many workers.
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