Businesses are telling the Federal Reserve they think wage gains are subsiding
Businesses are telling the Federal Reserve they think wage gains are subsiding
When Chicago Federal Reserve Bank CEO Austan Goolsbee joined Marketplace on Thursday to talk inflation, he said he isn’t worried about wage growth — he doesn’t think it’s a good indicator of where consumer prices are going.
It looks like he’s not the only one, according to the Fed’s most recent Beige Book. Businesses told the central bank they aren’t that worried about wage growth either, and in pretty much every Fed district, businesses said they expect wage growth to slow.
Over the 12 months ending in June, wages increased by more than 4.5%, according to the government’s latest employment cost index. That is incredibly strong, per Moody’s Analytics economist Dante DeAntonio.
“I mean, if you look through the entire decade — from when the Great Recession ended through right before the pandemic started — wage growth was, you know, more likely to be in the 2% to 3% range over that entire period,” he said.
Wage growth is down from a high of just over 5% annually in June of last year.
Glassdoor lead economist Daniel Zhao said he expects it to keep coming down, which will make it easier for employers to predict their labor costs.
“Having to make midcycle adjustments, having to dole out bonuses or expand benefits packages makes their compensation costs less predictable,” he said.
Fewer bonuses and stagnant benefits may sound not so great for workers, but while wage growth has been falling, inflation has been falling even faster.
“So if you think of the race between wages and prices, wages are winning,” said Arin Dube, an economics professor at the University of Massachusetts Amherst.
And the fact that both wage increases and inflation are declining is a sign that the economy is slowing down, Glassdoor’s Zhao added. “Ideally, everybody would slow down at the same pace and get into a more safe and sustainable speed.”
Because what the Fed is aiming for is less of a race and more of a Sunday drive.
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