Despite the incomplete nature of the recovery, influential voices are already calling for the Federal Reserve to guard against inflation by raising interest rates to slow the economy. The stakes in this debate are high. Widespread wage growth will not occur over the coming years if the Federal Reserve prematurely slows the recovery in the name of fighting prospective inflation.
The following charts—which will be updated regularly when new data are released—help explain why the Fed should hold off on raising interest rates until nominal wages are growing at a much faster pace. Until nominal wages are rising by 3.
And it will take wage growth of at least 3. In truth, the economy and workers could benefit from consistent wage growth significantly higher than 3. This figure shows the cumulative gap between actual average private-sector nominal hourly earnings and what these earnings would be today had they matched the 3.
Consistent wage growth at or above 3. It's happening in retail. You're seeing it everywhere. Golub said investors are right to wonder when the higher wage costs could pressure profit margins, but he does not anticipate it becoming a problem in the near term.
But Sam Stovall, chief investment strategist at CFRA, said higher wages is one reason he has become neutral on the consumer discretionary sector, which includes retail and restaurants. The sector is up just 4. Golub said it's not clear how long companies will raise wages, but if it continues and becomes inflationary, it will be a problem for earnings.
Unlike temporary increases in raw materials or goods impacted by bottlenecks in the supply chain, labor costs remain on a company's balance sheet. Wages are sticky. Golub said wages are not a profitability problem in the near term, and the market is focused on the reopening trade now, not so much margins.
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Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Jason Furman, a former top economic adviser to President Barack Obama, said Friday that inflation-adjusted wages still trail their pre-pandemic level, given the big price jumps that occurred over the spring and summer for new and used cars, furniture, and airline tickets. Whether inflation fades in the coming months will determine how much benefit workers get from higher pay.
Many economists expect inflation to slow a bit, while wages are likely to keep rising. Pay is rising much faster in the recovery from the pandemic recession than in the recovery from the Great Recession of , when wage growth kept slowing until a year after that downturn ended. Both packages provided stimulus checks and enhanced unemployment benefits that fueled greater spending. Lower-paid workers have seen the biggest gains, with pay rising for employees at restaurants, bars and hotels by 8.
In August, there were Millions of Americans are responding to rising wages by quitting their jobs for better-paying positions. A higher number of quits also means companies have to raise pay to keep their employees.
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