Americans Waiting for a Bigger Raise

Posted on November 17, 2017 by Laura Lam

wage growthThe government said that average hourly earnings rose 2.4% over the past 12 months.  That’s a slip from the 2.9% increase reported in September. It remains below the 3% to 3.5% range that many agree is normal in a truly healthy economy.  The last time wages were up more than 3% year-over-year was in April 2009, just as the economy was emerging from the depths of the global banking crisis that fueled the Great Recession.

Why have wages remained stagnant even though many other indicators of the job market and broader economy look healthy? Unemployment continues to drop. The housing market is vibrant and stocks continue to soar.

John Bellows, a portfolio manager at Western Asset, argues that the impact of globalization, more automation and an increased number of people working part-time are keeping wages in check.  Bellows and others think lawmakers and President Trump need to take action to improve American wages.  “I’m not sure how much the Fed can do to increase wages,” Bellows said. “But we shouldn’t be defeatist about it. It’s now just mostly up to Congress.”

Erik Weisman, chief economist at MFS, says that if tax reform passes and leads to lower corporate tax rates, big multinational U.S. companies may bring back to the U.S. cash that’s sitting overseas, and use it to boost salaries and hire more workers.  “Lower taxes could incentivize companies to keep profits onshore and invest more domestically,” Weisman said.

Matt Schreiber, president and chief investment strategist of WBI Investments, thinks there’s another problem. Now that companies are hiring again, people who had been unemployed or underemployed may be returning to the workforce for lower salaries.  “More people are getting jobs that underpay and are not making what they used to,” he said.  He added that businesses are still waiting to see if recent signs of U.S. economic improvement — two consecutive quarters of annualized growth of at least 3% — is sustainable.  Schreiber said that he is also hoping “corporate tax cuts could turbocharge the economy and wage growth.”

There are some hopeful signs.  Matt Toms, CIO for Voya Investment Management, said it is good to see that more states and cities are raising their minimum wages, as are giant American employers like Walmart (WMT) and McDonald’s (MCD).  But the average hourly workweek has remained relatively flat over the past few months, stuck around 34.4 hours. Toms suggests that some employers could be limiting worker hours in light of wage increases in order to keep labor costs in check.  “We’d be more encouraged if there was even more wage growth. It’s needed at this part of the economic cycle,” Toms said.

Source:  CNN Money