Last week, the Federal Open Market Committee rightfully decided against another interest rate increase. Raising rates serves to slow the economy down and, at this point in the recovery, the economy still needs all the help it can get to keep growing. Gross domestic product (GDP) showed a slow rate of growth of 0.5 percent annualized in the first quarter of 2016, following just 1.4 percent growth in the last quarter of 2015. As my colleague Josh Bivens wrote, “if such slow growth continues into 2016, there will be significant upward pressure on unemployment and recent gains in labor force participation will likely fade away.” While we all hope that GDP growth for the first quarter gets revised significantly upwards, and that the last 6 months are more of a blip than a new trend, it is certainly the case that the Fed’s decision to not raise rates looks justified by the data.

Private sector nominal wage growth is one of the top indicators to watch on Friday, and one of the indicators the Fed tracks most closely in making their decisions. Last week, however, we got another useful measure of labor compensation growth. The Bureau of Labor Statistics (BLS) released its latest compensation data from the Employment Cost Index (ECI) for March 2016. The data on wages and salaries from the ECI very much confirm the monthly nominal wage growth numbers that appear every month in the Employment Report (with data from the Current Employment Statistics (CES)). Over the year, private industry wages and salaries as measured by the ECI increased 2.0 percent, while overall compensation costs increased 1.8 percent. Turning to the monthly CES data, wages grew 2.3 percent for the year ending in March 2016.

On Friday, I’ll be looking for signs of stronger nominal wage growth. As the labor market strengthens one expects upward pressure on wage growth. However, the last 6 months have seen rapid increases in workers returning to the labor force in search of jobs. This inflow could well further delay the date when durable wage acceleration begins. At this point, wage growth remains below target levels consistent with the Fed’s 2 percent inflation target and trend productivity growth. While it is the case that productivity growth has slowed in recent years, evidence suggests that it too can pick up in a stronger labor market. As labor becomes more expensive, it will increasingly be used more productively alongside additional investments in complementary capital. At productivity growth rates consistent with genuine full employment and the Fed’s inflation target, we should be seeing wage growth upwards of 3.5 percent. Both the ECI and the CES are reporting wage growth far below this. And we need those higher rates of wage growth for a sustained period of time before the Fed should worry about incipient wage growth-led inflation and make a move to slow the economy.