October’s Hourly Earnings More Closely Watched Than Jobs

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Nov 2, 2018

When the US Labor Department releases its monthly jobs report this morning, one number will be of special interest to economists as it should be to comp specialists, too: The average hourly earnings.

The expectation by many economists is that the report will show hourly earnings rose between  3% and 3.1% in October.

While monthly earnings matter, they don’t typically make headlines the way changes in the unemployment rate and the number of jobs created — or lost — do. But coming on the heels of Wednesday’s Employment Cost Index, this morning’s report will add to the mounting evidence that wages are finally accelerating. The ECI report said wages and salaries grew at an annual rate of 3.1% for private sector workers through the end of September. It was the largest pay increase in a decade and represented a significant acceleration from September 2017, when pay grew at 2.6%.

Since the Great Recession, wage growth was largely stagnant, hovering around 2%, often just under. Even as employers began exhausting the ready supply of unemployed workers, wages crept up only slightly, puzzling economists who expected faster pay growth based on simple supply and demand. With the latest Cost Index report, their predictions may finally be coming true.

CNBC quoted a client note by Michael Pearce, senior U.S. economist at Capital Economics, in which he said, “The employment cost index data adds to the broader evidence that wage growth has continued to trend gradually higher over recent quarters. And with labor market conditions still tightening, we expect wage growth will accelerate further from here.”

Today’s report from the Bureau of Labor Statistics, released at 8:30 a.m. on the East coast, will be part of that broader evidence pointing to where wages are going. Although a single month’s change is far from enough to declare a trend, taken with the ECI data, it will help point to what employers are likely to see in the way of compensation expense in the coming months.

In addition to the hourly wage changes, the report is expected to show employers added about 190,000 to 195,000 new jobs. Unemployment is forecast to remain at 3.7%.