X

This is not a paywall.

Register for free to continue reading.

The news sucks. But your reading experience doesn't have to. Help us improve that for you by registering for free.



Please create a password or click to receive a login link.


Please enter your password or get a login link if you’ve forgotten


Open Sesame! Thanks for registering.

First Thing, Daily Maverick's flagship newsletter

Join the 230 000 South Africans who read First Thing newsletter.

We'd like our readers to start paying for Daily Maverick

More specifically, we'd like those who can afford to pay to start paying. What it comes down to is whether or not you value Daily Maverick. Think of us in terms of your daily cappuccino from your favourite coffee shop. It costs around R35. That’s R1,050 per month on frothy milk. Don’t get us wrong, we’re almost exclusively fuelled by coffee. BUT maybe R200 of that R1,050 could go to the journalism that’s fighting for the country?

We don’t dictate how much we’d like our readers to contribute. After all, how much you value our work is subjective (and frankly, every amount helps). At R200, you get it back in Uber Eats and ride vouchers every month, but that’s just a suggestion. A little less than a week’s worth of cappuccinos.

We can't survive on hope and our own determination. Our country is going to be considerably worse off if we don’t have a strong, sustainable news media. If you’re rejigging your budgets, and it comes to choosing between frothy milk and Daily Maverick, we hope you might reconsider that cappuccino.

We need your help. And we’re not ashamed to ask for it.

Our mission is to Defend Truth. Join Maverick Insider.

Support Daily Maverick→
Payment options

US Wage Increases Show Signs of Peaking in Welcome Sign...

Business Maverick

Business Maverick

US Wage Increases Show Signs of Peaking in Welcome Sign for Fed

Tourists at the Stinking Rose restaurant in the North Beach district of San Francisco, California, U.S., on Tuesday, April, 12, 2022. San Francisco's beleaguered tourism industry got good news when hotels hit their highest occupancy rate - 76% - since before the pandemic, last month, reported the San Francisco Chronicle.
By Bloomberg
27 May 2022 0

US wage growth looks to be peaking, a heartening development for the Federal Reserve if not for American workers.

After handing out hefty salary increases over the past year, companies are now becoming more cautious with their cash over concern further big payouts will eat into profits, according to staffing companies, business owners and recent surveys.

Economists are penciling in a moderation in annual earnings growth to 5.2% in May from April’s 5.5% in data out next week. Those figures are among the highest in records dating back to 2007.

Share of small business owners planning wage hikes, have jobs hard to fill is falling

Employers have had success passing on higher labor costs to customers so far, but may be reaching a tipping point at which higher price depress demand. That’s exactly what the Fed is hoping for in its all-out mission to tame some of the worst inflation in 40 years.

Chair Jerome Powell has zeroed in on the tight job market as a possible source of the problem, so any cooling in wage growth — and therefore, potentially inflation — would be welcome news for the central bank, as it walks a tightrope to rein in price pressures without sinking the economy.

“We’ve reached a level of wage inflation where employers are going to say, ‘I’ve done as much as I can,’” said Jonas Prising, chief executive officer of ManpowerGroup Inc., the Milwaukee-based staffing company that serves more than 100,000 clients worldwide. “‘My consumers and customers aren’t going to accept me passing these costs on any further, so we need to start to mitigate them.’”

That mindset should encourage Fed policy makers, who are counting on what they see as anchored inflation expectations to keep price pressures in check as they try to soft-land the economy. Their biggest fear is that expectations become unhinged, leading to a 1970s style wage-price spiral in which consumers anticipating higher prices will, in turn, demand higher wages — forcing companies to charge their customers more.

Increased chances of a soft landing would be good news for investors, who’ve seen stocks slide to their lowest levels in more than a year on fears the Fed’s efforts to curb inflation toward its 2% target will result in recession. The central bank’s preferred price gauge, the personal consumption expenditures index, showed a 6.3% increase in April from a year ago in data released Friday.

What Bloomberg Economics Says…

If pay increases subside, that “improves the odds that the Federal Reserve can manage a soft landing for the US economy.” But it won’t stop the Fed from raising interest rates by another 50 basis points in June and then again in July, which the central bank has indicated is its preferred path.

— Yelena Shulyatyeva and Eliza Winger, economists

To read the full note, click here

That’s taking a toll on American workers, who are seeing their wage gains eaten away by higher prices for everything from food and gas to shelter.

Burning Glass Institute Chief Economist Gad Levanon said the US is transitioning from a pandemic-driven job market — where many Americans weren’t actively seeking work due to fears of the virus and related issues — to one that is more traditionally tight because unemployment is low. That might take some of the edge off wage increases, but pay is still likely to grow rapidly, said Levanon, whose institute specializes in labor-market research.

“Every company still needs people but they don’t need hundreds of people,” said Tom Gimbel, chief executive officer of Chicago-based employment agency LaSalle Network. “They’re being choosier about who they’re hiring than they were six months ago.”

Many companies, especially larger ones like Chipotle Mexican Grill Inc. and T.J. Maxx owner TJX Cos., are still successfully passing on higher labor and materials costs to their customers. That’s a trend that most Fed policy makers commented on at their meeting earlier this month, according to minutes of the gathering released on Wednesday.

US wages aren't keeping pace with inflation, hurting American workers

However, “a few participants added that some of their contacts were starting to report that higher prices were hurting sales,” the central bank said.

That’s especially true among smaller firms, which generally have thinner profit margins, and can only boost pay and benefits so much. They also tend to be concentrated in industries with a larger proportion of low-skilled workers, where wage pressures coming out of the pandemic have been the greatest.

“The competition with larger companies is capping the ability of smaller firms to add to headcount,” said Nela Richardson, chief economist of Automatic Data Processing Inc., which provides payroll management and other services to companies.

Beveridge Well Drilling Inc. is among those feeling the pinch. The Nebraska-based company is offering an hourly wage of $16.50 for manual labor, up from $12 about a year ago. But even with “100%” health care benefits and other generous perks, it can’t fill all the open slots, vice president of construction Brandon Jones said.

And while the firm could bump up its offers to about $18 an hour, that’s “about as high as we feel we can do” against the backdrop of rising fuel and supply costs, Jones said.

Wage growth should slow to 4.5% by year end as temporary factors that have boosted pay, such one-time raises to compensate workers for pandemic hardship, come to an end, according to Goldman Sachs Group Inc. economist Spencer Hill. That will go some way toward the 3.5% to 4% pace he reckons is compatible with the Fed’s 2% inflation target.

“If wage growth comes part of the way down as temporary factors fade, the remaining task for the Fed would be more manageable,” Hill said in a note to clients this week.

Gallery

Comments - share your knowledge and experience

Please note you must be a Maverick Insider to comment. Sign up here or sign in if you are already an Insider.

Everybody has an opinion but not everyone has the knowledge and the experience to contribute meaningfully to a discussion. That’s what we want from our members. Help us learn with your expertise and insights on articles that we publish. We encourage different, respectful viewpoints to further our understanding of the world. View our comments policy here.

No Comments, yet

Please peer review 3 community comments before your comment can be posted