The bigger wage gains that have so far eluded American workers probably will begin to materialize this year as the job market tightens, according to economists polled by Bloomberg.
Hourly earnings for employees on company payrolls will advance 2 percent to 3 percent on average, according to 61 of 69 economists surveyed Jan. 5-7. They climbed 1.7 percent last year.
While still short of the 3 percent to 4 percent increases Federal Reserve Chair Janet Yellen has said she considers “normal” with 2 percent inflation, it would be another sign that the labor market is making headway. A jobless rate that’s quickly approaching the range policy makers say is consistent with full employment will mean employers will need to pay up to attract and keep talent.
“By mid-year we should start to see more meaningful wage gains,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania, whose firm projects wage growth just below 3 percent this year. “We’re absorbing a lot of this slack quickly.”
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Wages were one disappointing element in an otherwise brightening jobs market last year. Employers added an average 246,000 workers a month to payrolls, the best performance since 1999. The jobless rate sank to 5.6 percent in December, the lowest since June 2008 and just shy of the 5.2 percent to 5.5 percent that the Fed has defined as full employment.
The speed of the drop in unemployment has exceeded projections by the Fed and private analysts. Joblessness averaged 5.7 percent in last year’s fourth quarter, well below the 6.3 percent to 6.6 percent range projected by Fed officials in December 2013, and the 6.6 percent forecast by economists in a Bloomberg survey that month.
However, much of the drop in the unemployment rate is explained by people dropping out of the labor pool, for a variety of reasons, rather than big gains in jobs.
And the job picture also is marred by relatively low wages. Average hourly earnings dropped 0.2 percent in December from the month before, the biggest decline since records began in 2006.
The unexpected easing was probably influenced by the mix of workers on payrolls, economists said. Big gains in hiring of seasonal holiday workers, more entry-level positions and retirements of more expensive older employees all probably played a role.
While the Bloomberg survey on wages was taken prior to the jobs report last week, follow-up interviews with economists indicated the weak December reading wasn’t changing many minds.
A dwindling pool of jobless workers will probably pressure wages. There were 1.86 unemployed Americans per job opening in October, according to figures from the Labor Department.
That’s fewer than the 2-to-1 threshold that typically leads to larger pay increases in about six months as employers compete for a dwindling talent pool, according to research by economists at UBS Securities.
Workers and job seekers are becoming more optimistic. The share of Americans judging jobs as “hard to get” declined last month to its lowest level since March 2008, according to the New York-based Conference Board’s consumer confidence survey.
Almost half, or 45 percent, of Americans said now is a “good time to find a quality job,” the highest share since May 2007, according to results of a Gallup poll of 804 adults conducted Jan. 5-8.
Thirty-five percent of employees said they would seek another job if they didn’t receive a raise in the next year, according to results of a Harris poll of 2,030 adults from Dec. 12-16 released last week on behalf of Glassdoor, an online job-search tool. Almost half, 48 percent, said they were confident in being able to find a job in the next six months that matched their current skills and compensation levels, the biggest share in six years.
“Most of what we’ve been seeing is pretty positive, and at some point that will have to generate wage inflation,” said Gennadiy Goldberg, a strategist at TD Securities USA in New York, whose firm sees wages rising around 2.5 percent this year.
At the same time, pockets of the jobs market are limiting progress on wages. The share of jobless who have been out of work for 27 weeks or longer was 31.9 percent in December, more than twice its average in records dating to 1948. Workforce participation lingers at a 36-year low.
Slack wage gains won’t deter the central bank from tightening policy this year, according to the Bloomberg survey. Sixty-two of 67 respondents said the Fed could increase the benchmark rate from near zero even if wage increases fell short of 3 percent.
All they need to see is movement in that direction to help convince them that prices also will pick up, said Michelle Girard, chief U.S. economist at RBS Securities Inc. in Stamford, Connecticut, who sees wages climbing 3 percent this year.
“For the Fed, that’s like the minimum of what they need to see to think inflation will firm a bit,” said Girard. “It’s not like the Fed feels they need to jump on the first sign of wages firming, because they still have a long way to go just to get to the lower end of the normal range.”