A look at U.S. wage growth ahead of the November U.S. jobs report to be released today should translate to a gain of 3.9% on a year-ago basis.
We expect a net change in total employment of 220,000 positions, a 4.1% unemployment rate and a 0.3% increase in average hourly earnings.
Solid job growth in the range of 100,000 to 150,000 should continue to support wage gains that are well above inflation, which bodes well for overall spending heading into the holiday season.
But given the fact that the labor market is roughly 25% tighter than it was in 2016, with the prospect of restrictions on immigration, policymakers will be closely monitoring wage growth.
A look at the Federal Reserve’s Employment Cost Index, which the Federal Reserve uses to make policy, indicates that wage growth increased by 3.8% through the end of the third quarter, which is down from the cyclical high of 5.7%.
The Fed would like to see wage growth in the range of 3% to 3.5%, which they think is consistent with its 2% inflation target.
The National Federation of Independent Business Compensation Index implies a modest increase through the end of the year, which is consistent with a 4% increase in wages.
Read more of RSM’s insights on the economy and the middle market.
Our own RSM US Middle Market Business Index indicates that 54% of the senior executives at middle market businesses who were surveyed said they had increased compensation in the current quarter and 64% of those stated that then intended to do so over the next six months.
If immigration is significantly tightened and causes a decline in the domestic labor supply, policymakers will soon be discussing falling unemployment and the risk to the economic and inflation outlook linked to wage price spirals, which the American economy narrowly missed after the pandemic-era supply shocks.
