U.S. wages seem poised to rise

  • By Richard Clough, Victoria Stilwell and Jennifer Kaplan Bloomberg News
  • Wednesday, November 19, 2014 4:25pm
  • Business

NEW YORK — More than five years into the economic expansion, the signs that economists look for to herald the pickup in pay that has long eluded American workers are starting to emerge.

Wages and salaries climbed last quarter by the most since 2008 as a dwindling number of unemployed per job opening approached a tipping point. Amid rising profits and sales per employee, some companies have a cushion to boost compensation.

Evidence of a rebound in employee earnings is appearing in certain industries and regions, including Texas and North Dakota, that are riding the energy boom and the strengthening homebuilding market in the U.S. Southeast. While plenty of slack remains in the economy, raises are likely to filter to other areas as job creation whittles away at U.S. unemployment.

“Wage growth is beginning to bubble up,” said Mark Zandi, chief economist at Moody’s Capital Markets Group in New York. “It’s still nascent, early stages, but the labor market is now tightening to the point where we are beginning to see some stronger wage gains. This is the beginning of more definitive acceleration.”

At Houston-based Camden Property Trust, one of the biggest U.S. apartment owners, half of 14 projects under construction or being leased for the first time are as much as six months behind schedule because “we don’t have enough workers,” Chief Executive Officer Ric Campo said. Competitors are so brazen that recruiters will venture onto Camden work sites, he said.

“We have had situations where people have pulled up and said ‘Hey, I’ll pay you $100 cash right now if you come to my job,’” Campo said. He estimated that labor costs are helping boost building expense 5 percent to 15 percent.

Jockeying for Houston workers goes beyond energy, according to Ray Perryman, president of Waco, Texas-based economic consultant Perryman Group. Construction and even restaurant employees have received signing bonuses, he said by email.

The dearth of pay raises since the recovery began has puzzled economists and surfaced as an issue in the midterm elections. Even as unemployment fell and the economy created jobs, inflation-adjusted compensation per hour rose by only 0.7 percent over the last five years, the weakest growth for any expansion of comparable length since World War II, according to Bureau of Labor Statistics data compiled by Bloomberg.

The most likely culprit, many economists said, was the continuing drag of millions of long-term unemployed people as well as those toiling part-time. That has allowed companies to staff without having to offer fatter paychecks.

Now, the strengthening economy is starting to tighten the labor market, putting pressure on some companies to offer more raises to retain and recruit workers.

Employment costs over the past two quarters rose 0.7 percent, according to figures from the Labor Department. The gain in the third quarter was led by a 0.8 percent advance in wages and salaries for civilian workers that was the biggest since the second quarter of 2008.

The jobless rate has dropped by 1.4 percentage points over the past year to reach a six-year low of 5.8 percent in October, and the number of jobs waiting to be filled in August and September were highest since early 2001.

About two jobless workers were pursuing each opening in September, the fewest since early 2008 and down from almost seven in July 2009 at the depths of the last recession, according to data compiled by Bloomberg from a Labor Department report issued Nov. 13.

The 2-to-1 ratio is the 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.

As the jobless rate nears the 5.2 percent to 5.5 percent level that Federal Reserve policymakers say is equivalent to full employment, more companies will probably warm to the idea that wages will need to go up. That’s already true of industries such as trucking.

Swift Transportation Co., Con-way Inc. and U.S. Xpress Enterprises Inc. are among the companies raising pay this year to retain drivers or attract new ones. The operators are confronting a shortage as increasing cargo volumes converge with U.S. regulations limiting hours behind the wheel.

At the same time, employers have the means to pay more without putting a big dent in profit.

For the 470 companies in the Standard &Poor’s 500 Index reporting quarterly earnings through Nov. 18, 79 percent posted results beating analysts’ estimates, according to data compiled by Bloomberg.

Small companies, more dependent on the U.S. economy, not sales abroad, are showing their strength, too.

In a year in which the Russell 2000 Index rose to a record, the companies in the index posted an all-time high in per-share revenue on a trailing 12-month basis, according to data compiled by Bloomberg. Earnings per share for the previous 12 months reached a quarterly high as of Sept. 30, according to data compiled by Bloomberg.

In measuring sales per employee among index companies, the $1.4 million figure on Nov. 14 was 47 percent higher than at the end of November 2007, before the start of the last U.S. recession.

Evidence of a job-market turnaround is showing up in reports such as surveys conducted by the Institute for Supply Management, whose non-manufacturing members reported that labor was one of the commodities rising in price and in short supply in each of the past two months. That hasn’t happened since at least 2007, according to the Tempe, Arizona-based group.

Payroll processing company ADP also reported that the hourly wage rate of the 24 million workers at the firm’s clients rose 4.5 percent last quarter. While the respondents tend to be better performers than the average company, the wage gains accelerated across industries, firm sizes and employee demographics, said Moody’s Zandi, who produces the reports with ADP.

The ADP report is a leading indicator, and the trends could show up in Labor Department data by the middle of next year, Zandi said.

In the short-term, few economists expect a flood of pay raises as the slack in the labor market gets worked out.

“Depending upon where you are nationally, I’d say the general trend is that there are plenty of people to hire, which does not put pressure on wages,” CKE Restaurants Inc. CEO Andy Puzder said.

CKE, owner of the Hardee’s and Carl’s Jr. chains, sees exceptions in bustling shale-oil towns such as Williston, North Dakota, where the company’s $12 hourly minimum outstrips the $9 national average, Puzder said. State-level unemployment there is 2.8 percent.

Sluggish sales growth and concern that pricing power is too weak are acting as brakes on the kinds of corporate expansion that would accelerate hiring, according to economist John Lonski at Moody’s Capital Markets Group in New York.

Revenue increases remain “anemic,” Lonski said, with companies in the Standard &Poor’s 500 Index reporting an average third-quarter advance of 3.9 percent. Cost cutting, not higher sales, drove the earnings outperformance against analysts’ estimates, he said.

Sales increases in excess of 5 percent would be another tipping point promoting bigger gains in hiring and pay, said Lonski.

Other economists such as Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York, foresee bigger paychecks ahead.

“Wage growth is moderate, but accelerating, not stagnant as is the conventional wisdom,” Dutta said.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.