What to Watch on Jobs Day: Nominal Hourly Earnings
On Friday, the Bureau of Labor Statistics will release the October numbers on employment, unemployment, and nominal wages. Consensus forecasts are that that unemployment rate will hold steady, while total employment continues to rise, likely adding over 200,000 jobs. If job growth continues on this trajectory, it will likely keep on the front burner debates over just how much “slack” remains in the labor market, and whether the Federal Reserve should begin raising rates sooner or later.
But the most reliable indicator of slack at this point is not employment growth or unemployment—it’s the nominal wage series. The numbers on nominal wage growth from the Employment Situation, and other related government data, are likely to be the single most important indicator driving the Fed’s decisions in coming months.
Despite fears from some inflation hawks, the fact is that the weak labor market of the last seven years has put enormous downward pressure on wages, and there has been no significant pickup in nominal wage growth in recent years.
The figure below shows year over year nominal wage growth from a variety of data sources.
Quarterly wage series, 2000Q1–2014Q3
| Average hourly earnings of production/nonsupervisory workers | Average hourly earnings of all private employees | CPS-ORG median* | ECI, wages and salaries, all private workers | ECEC, wages and salaries, all private workers | |
|---|---|---|---|---|---|
| Jan-2000 | 3.7% | ||||
| Apr-2000 | 3.8% | ||||
| Jul-2000 | 3.8% | ||||
| Oct-2000 | 4.2% | ||||
| Jan-2001 | 4.1% | ||||
| Apr-2001 | 4.0% | ||||
| Jul-2001 | 3.7% | ||||
| Oct-2001 | 3.3% | ||||
| Jan-2002 | 3.0% | 3.5% | |||
| Apr-2002 | 2.7% | 3.6% | |||
| Jul-2002 | 2.9% | 3.1% | |||
| Oct-2002 | 3.1% | 2.6% | |||
| Jan-2003 | 3.2% | 2.9% | |||
| Apr-2003 | 2.9% | 2.4% | |||
| Jul-2003 | 2.6% | 2.9% | |||
| Oct-2003 | 2.0% | 3.1% | |||
| Jan-2004 | 1.7% | 2.6% | |||
| Apr-2004 | 2.0% | 2.8% | |||
| Jul-2004 | 2.1% | 2.6% | |||
| Oct-2004 | 2.5% | 2.6% | |||
| Jan-2005 | 2.6% | 2.7% | 3.1% | ||
| Apr-2005 | 2.6% | 2.5% | 3.0% | ||
| Jul-2005 | 2.7% | 2.3% | 1.6% | ||
| Oct-2005 | 3.0% | 2.5% | 2.9% | ||
| Jan-2006 | 3.4% | 2.5% | 3.4% | ||
| Apr-2006 | 3.9% | 2.8% | 3.3% | ||
| Jul-2006 | 4.1% | 3.1% | 4.7% | ||
| Oct-2006 | 4.1% | 3.2% | 3.4% | ||
| Jan-2007 | 4.1% | 3.5% | 3.4% | ||
| Apr-2007 | 4.0% | 3.6% | 3.4% | 3.1% | |
| Jul-2007 | 4.1% | 3.4% | 3.3% | 2.1% | |
| Oct-2007 | 3.8% | 3.2% | 3.3% | 3.1% | |
| Jan-2008 | 3.8% | 3.1% | 3.2% | 3.1% | |
| Apr-2008 | 3.7% | 2.8% | 3.1% | 3.3% | |
| Jul-2008 | 3.7% | 3.2% | 2.9% | 3.9% | |
| Oct-2008 | 3.9% | 3.5% | 2.6% | 3.7% | |
| Jan-2009 | 3.6% | 3.4% | 1.8% | 2.0% | 2.9% |
| Apr-2009 | 3.1% | 2.9% | 1.3% | 1.6% | 2.5% |
| Jul-2009 | 2.7% | 2.4% | 1.2% | 1.4% | 1.6% |
| Oct-2009 | 2.6% | 2.1% | 1.4% | 1.4% | 0.2% |
| Jan-2010 | 2.5% | 1.8% | 1.0% | 1.5% | 0.7% |
| Apr-2010 | 2.5% | 1.8% | 0.8% | 1.6% | 0.7% |
| Jul-2010 | 2.4% | 1.8% | 0.4% | 1.6% | 1.2% |
| Oct-2010 | 2.2% | 1.8% | -0.1% | 1.7% | 1.2% |
| Jan-2011 | 2.2% | 1.9% | -0.2% | 1.6% | 1.4% |
| Apr-2011 | 2.1% | 2.0% | 0.2% | 1.6% | 1.4% |
| Jul-2011 | 2.1% | 2.0% | 0.7% | 1.7% | 1.2% |
| Oct-2011 | 1.8% | 2.0% | 0.6% | 1.6% | 2.5% |
| Jan-2012 | 1.5% | 1.9% | 0.6% | 1.9% | 2.0% |
| Apr-2012 | 1.6% | 1.9% | 1.6% | 1.8% | 2.3% |
| Jul-2012 | 1.4% | 1.9% | 1.5% | 1.8% | 2.3% |
| Oct-2012 | 1.4% | 1.8% | 1.8% | 1.8% | 0.9% |
| Jan-2013 | 1.9% | 2.0% | 2.8% | 1.7% | 1.1% |
| Apr-2013 | 1.9% | 2.1% | 2.3% | 1.9% | 1.0% |
| Jul-2013 | 2.1% | 2.1% | 2.3% | 1.9% | 0.9% |
| Oct-2013 | 2.3% | 2.1% | 2.0% | 2.0% | 2.2% |
| Jan-2014 | 2.3% | 2.1% | 1.5% | 1.7% | 2.4% |
| Apr-2014 | 2.3% | 2.0% | 0.4% | 1.9% | 2.7% |
| Jul-2014 | 2.3% | 2.0% | 0.7% | 2.2% |
Note: Wage target consistent with Fed 2% inflation target and 1.5% productivity growth assumption. CPS-ORG median is a six-month moving average.
Source: Author's analysis of Bureau of Labor Statistics' Current Establishment Survey, Current Population Survey (CPS), Total Economy Productivity (unpublished), Employment Cost Index (ECI), and Employment Costs for Employee Compensation (ECEC).
As you can see in the figure, even quarterly wage measures exhibit a fair amount of volatility. Taken together, however, it is clear that wage growth is far below the 3.5 percent rate consistent with the Federal Reserve Board’s inflation target of 2 percent, and far below 4 percent rate that could easily be absorbed for a while to restore labor’s share of national income from its current historic lows. It’s clear that Fed policymakers should continue its low interest rate policy until the wage data really turns around. For a longer analysis of the Fed target and what to watch for in upcoming months on wage growth, see this earlier explainer. On Friday, we will continue to track any changes in monthly nominal wages and put them in broader economic context.
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