Still waiting for the great wage rebound

May 7, 2015

AIt’s now been well over a year since the two major central banks most likely to raise interest rates in the near future warned us we should pay attention to pay.

Many of those who are handsomely well-compensated in the financial industry to time each first move and how quickly we’ll get another one still are focusing on net hiring — as well as a whole host of things which aren’t squarely in the crosshairs of the U.S. Federal Reserve, as well as the Bank of England.

While there are plenty of reasons to believe that wage inflation is on the verge of accelerating any minute, warning signs that are flashing red still are hard to come by.

Apart from smaller surveys and anecdotal evidence, a pickup hasn’t showed up yet in official statistics, except the latest U.S. employment cost index, which suggested something may be stirring. But that includes benefits like healthcare, not just pay.

Until solid evidence of wage inflation appears, expectations for when the Fed or the BoE will raise rates from record lows will keep getting kicked down the road. September is now looking more likely for the Fed after settling on June for more than half a year, while the timing for the first BoE hike has moved from late last year to the first quarter of 2016.

But none of that rate disappointment is down to disappointing hiring. The jobless rate both in the U.S. and in Britain has fallen to such a low level that many economists are scratching their heads wondering how this late in the game pay growth isn’t picking up.

Yet most of the attention on the latest U.S. jobs data, due on Friday, inevitably will focus on whether or not hiring revived back above 200,000 a month after a shockingly poor performance in March. (126,000 was well below even the most pessimistic prediction in a large sample of over 100 economists). The most accurate forecasters in recent Reuters polls are calling for April hiring above the consensus of 224,000.

Their optimism may be well-founded, despite evidence that the economy had a very bad start to the year, just like so many recent years.

But the most accurate forecasters on hiring aren’t the same people who are the most accurate on wages. Indeed, less than half of those who forecast hiring actually provide a view on pay growth, which explains the market focus.

The other simple thing is tracking wage inflation hasn’t been terribly exciting for a long time now, either for workers or statisticians.

The consensus view, with the exception of two blips, has been the same for nearly half a decade: 0.2 percent on a monthly basis, which roughly translates to a wage inflation rate around 2 percent.

average earnings april

That is not likely to push up inflation, which is running even lower thanks to much lower energy costs than this time last year.

And the top 10 ranked for accuracy all have forecasts of 0.2% or 0.1%, with one exception at 0.3%.

That means that we’re most likely to see an impressive rebound in hiring in April, but without much to report yet on wages.

— with reporting by Deepti Govind and Sumanta Dey

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