Close Close

Portfolio > Economy & Markets

Schwab's Sonders: Wage Growth Is Finally Taking Off

Your article was successfully shared with the contacts you provided.

Wall Street may not be all that happy about it, but workers likely will be: Wages are finally on the rise.

According to a market commentary from Schwab’s chief investment strategist, Liz Ann Sonders, a number of signs point to upward pressure on wages that could also point to downward pressure on profit margins as well as less impressive market returns — in other words, continued strong job growth now comes with a price tag.

While employment figures were up again in the most recent employment report, there were also downward revisions from the previous two months. However, that’s not as remarkable as the boost in pay figures: Average hourly earnings were up by 0.4% month over month and 2.9% year over year (last year’s average was 2.5%).The unemployment rate was unchanged at 3.9%, thanks to the labor force shrinking by 469,000.

Not only are more people feeling secure enough to quit their jobs — job leavers as a portion of the unemployed rose to 14% — but the number of employed workers in part-time jobs out of economic necessity fell by nearly 200,000. And with more job openings than people to fill them, according to the report, not only is that upward pressure on wages likely to continue, but it’s increasingly looking as if two additional rate hikes from the Federal Reserve — one probably this month and the other in December — are in store.

Another signal: Says the report, “nominal gross domestic product (GDP) growth is now above the unemployment rate for the first time in this economic cycle.” In addition, “when the unemployment rate has historically fallen enough, and/or growth has accelerated enough such that nominal growth exceeds the unemployment rate,” the Phillips curve kicks in. It “highlights the historic inverse relationship between the level of unemployment and the rate of wage inflation.”

National Federation of Independent Business survey data also indicate that small businesses are planning on higher wages for workers in the next three months — largely because of the skills gap in filling positions with “quality” labor, they’re now more concerned with that and pay hikes than earlier worries about sales, taxes and regulations.

In addition, those low unemployment rates are likely to weigh on the stock market, and while currently there are no indications of imminent issues with profit margins, that doesn’t mean that investors should ignore the signs of a changing economic picture.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.