MNI INTERVIEW:  Wages Hotter Than Labor Dept Data- Atlanta Fed

U.S. wages rose even more rapidly last month than the Labor Department's average hourly earnings metric would suggest, as workers remained in short supply, Federal Reserve Bank of Atlanta economist John Robertson said in an interview.

The Atlanta Fed Wage Growth Tracker, which monitors people who have stayed in their job for at least a year, was steady at 6.7% in July, a gain well in excess of the 5.2% increase in average hourly earnings indicated by Labor Department data. The tracker showed that people who took new jobs last month won an increase of 8.5%, up from 7.9% in June, and much higher than July’s 5.9% rise for stayers.

"The overall level of growth stabilized in July, but is still very strong and rising for job switchers," Robertson told MNI.

“The biggest story is still on the supply side. The labor force participation rate is still stuck at a lower level than pre-Covid, even among prime-age workers," he said. "The labor market still seems very tight."

SUPPLY OF WORKERS

The Atlanta tracker has rocketed higher since May 2021, when it was at the pandemic low of 3.0%. It is now seeing the fastest rate of increase since data began in the early 1980s. The Labor Department's Employment Cost Index, which controls for changes in labor composition by looking at a set basket of jobs every quarter, showed private sector wages picking up to 5.7% in the second quarter, the fastest since 1982.

Demand for workers is very high but it's where it should be had the five-year trend prior to Covid continued, Robertson said. "The thing that’s created the gap is the supply side. It hasn’t recovered at all. And every month that it doesn't recover makes you think maybe it won’t recover in the way we thought."

"The longer it goes on, the more permanent it looks," he added. "The Fed needs to put more weight on easing the demand side to give supply time to catch up."

MUDDLED PICTURE

Rapid wage growth is one part of the labor market story, but the overall picture is more complicated, Robertson said.

"You have wage growth still strong, but you do see from JOLTS data that the number of vacancies is starting to come down, which suggest excess demand is easing for workers. That would be consistent with some softening in wage pressure," he said. "But payrolls coming in at over 500,000 last week, which would be consistent with demand being very strong, and the unemployment rate moving to 3.5%, an all time low."

"Right now it’s a very muddled picture of the labor market," he said. "We have to keep monitoring the data very closely to find a balance where demand starts to ease enough."

Initial jobless claims have drifted higher over the past several weeks, but JOLTS layoffs figures haven't budged from low levels. At the same time, the JOLTS quits rate has stabilized, consistent with some easing in labor market conditions, Robertson noted.

"It's hard to draw any strong conclusion about the state of the labor market. The data are not speaking with one voice." (See MNI: U.S. Staffing Firms Say Job Openings Data Inflated)