One of the most important indicators highlighting the tightness of the U.S. labor market today: recent improvement in wage growth. The October jobs report saw average hourly earnings rise by an impressive 0.4% on the month, above the consensus estimate of 0.3%. Average hourly earnings are now growing at 2.8% year-over-year, the most since June 2009, and rising wages are pushing up inflation. See the chart below.
The leisure and hospitality sectors are partly behind this wage growth. These “low wage” (in terms of dollar/hour pay) sectors have been regions of robust hiring in recent years as well as areas of the economy that have seen significant consumer spending. Industries such as utilities and information technology are also seeing growing wages.
I expect labor market tightness to continue to put upward pressure on wages through the remainder of the year. Of course, what happens with minimum wage policies is important to watch. When wage costs are increased through policy rather than via market mechanisms, revenues and profits (and hiring) can take a hit unless businesses can exhibit pricing power to correspondingly increase what they charge end customers to offset their own labor cost increases.