More Americans are finding jobs, and the unemployment rate is at a 16-year low. That is undeniably good news.
But there is one number in the jobs report that remains frustratingly subpar: wage growth.
The government said Friday that average hourly earnings for workers rose 2.5% over the past 12 months, to $ 26.36 an hour. That is good, but not fantastic.
Many economists, including members of the Federal Reserve, feel that wage growth of 3% to 3.5% a year is healthier. That allows consumers to better keep up with inflation.
Wages were growing about 3% a year just before the Great Recession began at the end of 2007, but they have cooled since then. That could pose a problem for the economy.
Without higher wages, Americans may pull back on spending — regardless of whether tax cuts are coming from President Trump and the Republican-led Congress.
“Despite a roaring U.S. labor market, average wage growth remains stubbornly muted,” said Dr. Andrew Chamberlain, chief economist with job search site Glassdoor, in a report.
“Until that trend reverses, the gains from today’s economy will not be translating into improved paychecks for the average American worker,” Chamberlain added.
Usually, employers start to offer higher pay as the economy improves and workers become harder to find. One reason that’s not happening may be that employers are hiring workers who were left behind during the recession and are happy to be finding jobs at all.
When employers realize they don’t need to offer big salaries to attract the workers they need, that keeps a lid on wages.
“It is clear that employers need to do little to attract and retain the workers they want and any significant signs of labor shortages are simply not showing up,” Elise Gould, senior economist with the Economic Policy Institute, wrote in a report.
Still, others think that the modest increase in wages will be good enough to keep Americansin a good mood.
Doug Duncan, chief economist at Fannie Mae, said in a report that it would be a mistake to “nitpick” the gain in wages, adding that the steady rise over the past year “isn’t too shabby.”
It’s also worth noting that many companies in some lower-paying sectors, such as restaurants, leisure and hospitality, are starting to hire more workers.
That may be holding down wages overall, but it’s still a good sign that people are able to find work.
“Low-wage industries grew fastest in July,” said Jed Kolko, chief economist with job search site Indeed, in a report.
“That’s helping the least-educated Americans get back to work. The recovery is now strong and long enough to lift many of the people hurt most by the recession,” Kolko added.
And at least one economist thinks the tide might be turning for all job-seekers. Wage growth should eventually pick up and return to more normal levels as the overall labor market improves.
“It’s simple logic … that as the job market further tightens, workers will be able to demand higher salaries or take their skills to a competitor that will pay a higher wage,” Ameriprise senior economist Russell Price wrote in a report.
“Over time, there’s little doubt that as the labor market gets tighter and tighter, wages and salaries will eventually rise. Workers will start changing jobs to move to the highest bidder,” Price added.