Wage growth looks healthy but not inflationary


The Goldilocks nature of these jobs numbers is particularly apparent in the wage data.

By the numbers: Average hourly earnings rose by 0.3% in December, and are up 4.6% over the last year. Over the last three months, worker pay rose at a 4.1% annual rate.

  • Wages are rising, but unlike a year ago, the pace is consistent with the economy settling into the 2% inflation that the Fed seeks.
  • For example, there were stretches in 2018 and 2019 that featured wage growth similar to that in Q4 paired with low inflation levels — which meant rising real wages for workers.
  • In other words, current pay growth, if sustained, would help diminish the Fed’s fears of an upward spiral of wages and prices. Also, it sets workers up to see gains in their real compensation, if and when inflation comes down.

The intrigue: It appears that a surge in earnings initially reported in November was a head fake. The Labor Department revised those numbers to show a 0.4% rise in hourly earnings, not the 0.6% first reported.

  • The original figures had been a source of alarm among Fed watchers, suggesting the central bank might need to step up its monetary tightening campaign.

It is a good reminder  for both policymakers and those of us in the media — to not overreact to single-month shifts in any volatile data series.

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