Wage growth expected to remain steady

In the coming months, the rate of pay increases for private-sector workers is expected to remain steady, according to the revised first quarter Wage Trend Indicator released by Bloomberg BNA.

The index dropped to 98.40 from 98.56 in the fourth quarter of 2011. If the final first-quarter reading confirms it, this would mark the WTI's first decline in nearly two years. Private-sector annual wage increases are projected to near the 1.6 percent gain in 2011 as measured by the Department of Labor’s employment cost index.

Five of the WTI's seven components reveal negative contributions to the revised first-quarter reading, which could reflect recent economic conditions, while two factors are positive.  Among the negative contributors are forecasters' expectations for the inflation rate, compiled by the Federal Reserve Bank of Philadelphia; industrial production, calculated by the Federal Reserve Board; average hourly earnings of production and nonsupervisory workers, cited by the DOL; and the share of employers planning to hire production and service workers in upcoming months and the proportion of employers reporting difficulty in filling professional and technical jobs, both tracked by Bloomberg BNA's quarterly employment outlook survey. The positive factors are job losers as a share of the labor force and the unemployment rate, both computed by the DOL.

"The latest WTI is indicating a stall in the pace of wage growth, but it is too early to tell whether there has been a change in the underlying pressures on wages," says economist Kathryn Kobe, a consultant who maintains and helped develop Bloomberg BNA's WTI database. "Although the job market has improved noticeably in recent months, the inflation outlook has eased for the moment.”

Throughout its history, the WTI has forecasted a turning point in wage trends six to nine months before the trends became apparent in the Department of Labor's ECI, and a continued decline in the WTI could project a deceleration in the rate of private sector wage increases while multiple increases suggests more pressure to raise wages.

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