Wages Eke Out Gains in Recent Months

The jobs report for August was OK, but was there potentially better news.

The jobs report for August was OK, but was there potentially better news buried in the Bureau of Labor Statistics report last week in the form of data on pay? According to the BLS, average hourly earnings for all employees on private nonfarm payrolls rose by 8 cents to $25.09 in August, following a 6-cent gain in July, which are reasonably good monthly gains. Hourly earnings have risen by 2.2 percent over the year, which isn’t that great, but if the gains in the summer continue at the same pace into the fall and beyond, annualized wage increases will also increase at a faster rate.

Higher wages are still a missing piece of the growth puzzle, since productivity growth has long outstripped wage growth. Net U.S. worker productivity grew 1.33 percent each year between 1973 and 2014, compared with annual gains in hourly compensation of 0.2 percent during the same period. Since 2000, the trend has been even more lopsided: net productivity growth of 21.6 percent from 2000 to 2014 compares with a 1.8 percent rise in inflation-adjusted compensation.

But there’s some reason to believe that wages will pick up enough continue to outpace inflation amount (which is still below 2 percent) by more than a token amount. For one thing, the economy’s edging toward “full employment,” though it’s hard there yet. Also, some industries—including traditionally low-paying ones, such as retail—are seeing wages go up faster than the 2.2 percent average for the year. Some higher-paying sectors are gaining faster than the average as well, including professional and business services (but only a little, with that sector still below a 3 percent annualized gain). So it’s possible that the missing piece might be falling into place.

The wage conundrum is important to real estate for a number of reasons. A lid on wage costs within a particular industry (such as real estate) is good for owners and managers in the industry since lower costs are, after all, lower costs. But a lid on wages in the wider economy isn’t good for some particular industries, including real estate, especially to the extent that it doesn’t spark inflation. Increases in wages represent a spur to growth, since consumers tend to devote higher wages to consumer spending, which benefits retail and hotel properties directly, and industrial and office properties indirectly.