Wage Growth Rate Fastest in a Decade, Beating Expectations

April 28, 2018 5:04 pm Last Updated: May 6, 2018 9:39 am

Private sector wages and salaries have been growing at the fastest pace since 2007, jumping 1 percent in the first quarter of 2018 alone, according to the Bureau of Labor Statistics.

The 1 percent mark has eluded the market for more than a decade, since the first quarter of 2007.

Wages and salaries for Private industry workers in All industries and occupations, 3-month percent change, seasonally adjusted. (U.S. Bureau of Labor Statistics)

The first-quarter growth may prompt a reshuffling of predictions that wage growth would stagnate this year.

Human resources consultancy Korn Ferry predicted 3 percent wage growth over the entire 2018 year, while Mercer predicted only 2.9 percent.

By industry, the fastest growth occurred in aircraft manufacturing, transportation, sales, finance and insurance, and leisure and hospitality.

Mercer noted employers are now directing the highest pay increases toward the most valuable employees.

“As organizations continue to contend with the changing jobs landscape and falling unemployment, they’re luring and keeping good workers by directing pay raises to star performers and using job promotions and nonmonetary benefits to keep in-demand workers engaged,” states the forecast released in October.

Workers with in-demand skills, in jobs such as social media communications professional and senior engineering technologist, can expect pay raises of 5 percent and up this year, according to Mercer’s database, which tracks pay practices for more than 16 million employees.

The faster wage growth has been dampened by higher inflation as consumer prices rose by 2.4 percent over the past year (March-to-March).

Consumer Price Index, 12-month percentage change, all items. (Screenshot via U.S. Bureau of Labor Statistics)

Also, growth in state and local government employee wages and salaries have somewhat slowed over the past year to 1.8 percent.

On the other hand, workers are starting to see higher take-home pay, as lower withholdings due to President Donald Trump’s tax cuts are kicking in.

Surveys suggested many workers did not see the tax cut boost to their paychecks until late in the first quarter.

Household disposable income increased at a rate of 3.4 percent in the first quarter, accelerating from the fourth quarter’s 1.1 percent pace. Households also boosted savings.

Wage growth is not the only economic indicator exceeding expectations. Jobless claims have fallen to the lowest level in almost 50 years, and the gross domestic product is forecast to get a boost this year rarely seen in the past two decades.

The economy has been beating expectations for over a year thanks to the “Trump effect”—a boost to confidence in the economy linked to Trump’s cuts to regulations, taxes, and planned investment in infrastructure.

Reuters contributed to this report.

 

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