US workers get a pay rise – and more is on the way

Wages are rising slowly in the US – growth should hit 3% later this year. Bbut the prospects for workers continue to improve.

America is hiring again but still not paying up

2016 Getty Images

"When it comes to financial gains, investors are retaining the edge over workers," says Gina Chon on Breakingviews. The White House said this year's corporate tax cut, which saw the rate fall from 35% to 21%, would give households a big boost. But there's little sign of that so far, despite the tightening labour market.

Advertisement - Article continues below

In May US payrolls grew by an impressive 223,000, and the unemployment rate slipped to an 18-year low of 3.8%. A broader gauge of unemployment, which includes part-time workers who want a full-time job and those who have become discouraged and stopped looking for a position, fell to 7.6%, a 17-year low. Wage growth rose to an annual rate of 2.7% not bad, but not the sort of figure you would expect to see if companies really had used their windfall to boost compensation.

So what have they done with the money? They have bought back stock, says Chon. Tonnes of it. In May the value of announced stock buybacks reached $171bn, a new monthly record. JP Morgan is pencilling in a 51% increase to a record $800bn for 2018. That's $5,000 "for every member of the civilian labour force". Yet the overall trend of wage rises gathering momentum as the labour markets tightens remains intact.

Pay growth at small firms has risen sharply, while the number of voluntary job-leavers continues to increase, signalling confidence in job-finding prospects. Indeed, this gauge hasn't been this strong in two economic cycles, according to Tom Porcelli of RBC Capital Markets. And it "leads wage growth by a few quarters".

The upshot is that annual earnings growth should top 3% later this year. It may be taking time, but the prospects for wage growth and higher inflation and interest rates continue to improve.




How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
US Economy

Trump urges the US Federal Reserve to bring in negative interest rates

Donald Trump has urged the Federal Reserve to embrace negative interest rates.
21 May 2020

For how long can stockmarkets ignore rising unemployment?

US unemployment figures are looking terrible – up to 20 million people have lost their jobs. But markets don’t seem to care. John Stepek explains what…
11 May 2020

Most Popular

UK Economy

What bounce back loans can tell us about how we’ll pay for all this

The government will guarantee emergency "bounce back loans" for small businesses hit by Covid-19. Inevitably, many businesses will default. And there'…
1 Jun 2020

This looks like the biggest opportunity in today’s markets

With low interest rates and constant money-printing, most assets have become expensive. But one major asset class hasn’t. John Stepek explains why com…
2 Jun 2020

These seven charts show exactly why you must own gold today

Covid-19 is accelerating many trends that were already in existence. The rising gold price is one such trend. These seven charts, says Dominic Frisby,…
3 Jun 2020