The Federal Reserve is frustrated that its interest rate hikes haven’t
slowed down wage growth, an important part of its strategy to control inflation.
But the problem it’s having might have less to do with which economic levers it’s pulling, and more to do with which data it’s pulling.
The wage data the Fed uses now is for all currently employed people. But current wages are not always indicative of future wages, which means the Fed’s measure might be lagging behind reality.
Indeed, the jobs site, released data this week that for the first time tracked where wage growth was heading on its US jobs listings. Indeed discovered that the three month average for wages rose by 9% from March 2021 to March 2022, but had fallen to 6.5% by November.
Indeed found the same trend in a wage tracker run by the Atlanta Federal Reserve, but with a three month lag compared to the Indeed data. In July, job switchers got 8.5% annual raises according to the tracker and November’s Atlanta Fed data showed an annual raise of 8.1%.
“Wages and salaries advertised in job postings on Indeed are a potential canary in the labor market coal mine,” wrote Indeed labor economist Nick Bunker. “The slowing pay gains in job postings may be a harbinger of what broader measures of compensation will show in the months ahead.”
In other words, the Fed could use this data to know when to ease up on interest rate hikes and avoid a recession.
Where are wages for US workers heading?
Considering the decline it has observed, Indeed predicts that wage growth on job postings will return to its pre-pandemic trend of 3% to 4% growth by the second half of 2023.
Since overall wage growth lags the wage growth for new hires, it could be well into 2024 before the Federal Reserve sees its measure return to pre-pandemic levels.
Also, Indeed notes, as the reward for switching jobs goes down, workers will be less likely to quit their current jobs, which will put further downward pressure on wages.
This slower wage growth is broad, affecting more than 80% of industries in the US, according to the Indeed’s data. But it’s been most significant for childcare employment, which was still up by 9.5% in November but has dropped by 4.5 percentage points in the last six months.