Wage growth and inflation have been abnormally low for the better part of the past decade. The lack of rising wages has had numerous impacts, from increased income disparity and a vanishing middle class, to sluggish consumer spending. After averaging a paltry 2% annual rate of wage growth from 2009 to 2014, the past couple of years have seen that rate increase to 3.4% according to the Atlanta Federal Reserve Bank’s wage tracker.
With the unemployment rate at a level of five percent or less for the past two years, we believed wage gains were soon to follow. While it is well documented that incomes of high earners have seen decent growth, the low-end of the income scale has been lagging in terms of wage growth. The latest numbers from the Bureau of Labor Statistics show that real (inflation-adjusted) mean earnings, which more accurately reflect the average worker in the U.S., have increased dramatically over the past couple of years. This confirms our thoughts from the January 2016 View From A Mile Up article, U.S. Consumers to the Rescue, where we focused on the increasing income expectations of U.S. households.
After languishing for the better part of a decade and a half (2000-2014), the past three years have seen a surprising uptick in earnings for the average worker in the United States. One would expect wage gains to continue to accelerate as unemployment rates stay low and participation rates tick up. Higher wage gains are a contributing factor to increased consumption by U.S. consumers, accelerating economic activity, and eventually, driving higher inflation.