MNI INTERVIEW: Atlanta Fed Wage Tracker Shows Deceleration

U.S. wage growth continues to cool alongside other signs of normalization in the labor market, a trend that bodes well for returning inflation to 2%, Federal Reserve Bank of Atlanta economist John Robertson said in an interview.

The three-month moving average of wage growth for the median U.S. earner dipped to 6.1% in January and February from a high of 6.7% last summer, according to the Atlanta Fed Wage Tracker. Robertson downplayed a rebound to 6.4% in March, attributing it to a very low December reading that dropped out of calculations rather than the start of a new upward trend. The wage tracker uses microdata from the Bureau of Labor Statistics' monthly household survey to compare wages of the same person 12 months apart.

The figures signal a likely further easing in the BLS's employment cost index, the Fed's preferred measure of wages and benefits trends. ECI data for the first quarter is due April 28 just before the FOMC begins deliberations on how much higher rates need to go. (See: MNI INTERVIEW: Fed Close to Done As Credit Tightens-Kroszner)

"The recent trend has been consistent with some easing in labor market pressures," Robertson told MNI, noting the gradual increase in the number of people actively receiving unemployment benefits and a retreat in quitting rates and job vacancies. "The labor market is still tight but not as tight as it was."

STAYING AT THE JOB

Overall wage growth remains well above the 3.5% to 4% range seen in 2019, but Robertson pointed to another spot where the data have softened. The premium enjoyed by job switchers, compared to job stayers, peaked around August at 2.5 pps and has fallen to 1.4 pps, comparable to pre-Covid averages of around 1.5 pp.

"Pay raises aren’t quite as extreme as they were last year, and that’s also what we’re hearing from businesses. They’re able to retain workers, they're going back to more standard hiring practices like background checks," he said. "Workers are perhaps feeling a little more hesitant to quit and risk taking another job where they might be the first one in and first one out."

At the same time, the fraction of people who say their pay is unchanged from a year ago has drifted back to around 11% for the first time since before the Great Recession, indicating general strength in the labor market, Robertson said. Pay freezes for years after the financial crisis had left that rate several points higher until wage growth began taking off in 2021.

HOURLY PAY DATA

Average hourly earnings data in the monthly jobs report have also pointed to slower wage gains, with the three-month annualized rate moderating by 0.4 pp to 3.2%.

The data suffer from compositional distortions when more lower-paying jobs are created, but it is "generally consistent with other labor market indicators reflecting lower demand and improving supply relative to a year ago," Robertson said.

Still, he cautioned against drawing conclusions too soon on the decline in hourly pay data, especially since wages were reportedly flat for the large private education and health services category in March.

"That seems artificially low and a rise could push the average hourly earnings number higher again," Robertson said. "You have to think about composition in a different way. The persistence of inflation is driven by the service sector, so you want to look at the wages associated with service production. It’s not so clear that’s slowing quite as much."