I don’t know what I’m getting all excited about. My quarterly five-wage mash-up series through 2015q1 shows nominal wage growth pretty much plodding along at the same 2% it’s been stuck at for years.
The plot shows the first principal component (PC) of the yearly changes in the five wage and compensation series listed below, using quarterly data since 1982. PC analysis is not “politically correct” (though it is careful not to insult any individual wage series just because it’s different). It’s a technique to summarize a bunch of related data series in a way that pulls out their common signal. Its utility here is that it gives back a weighted average of a number of quarterly series in a way that downweights noise and pulls out signal.
If you squint hard you can maybe see some tiny uptick in trend at the end of the series but nothing to write home raise rates about. Remember, this flat trend is occurring amidst an unemployment trend that is allegedly within spitting distance of the Fed’s full employment rate of 5.1%. The current, official jobless rate is 5.4% but our estimate of Andy Levin’s more accurate rate, which adjusts for a) distance from full employment, b) the still elevated but falling number of involuntary part-timers, and c) the part of the missing labor force that we think represents slack (potential workers who would come back in if demand were stronger) is 6.8%.
Cutting to the chase, given the downward bias in the jobless rate and the fact that inflation continues to well undershoot its 2% target (which is also consistent with the bias in the unemployment rate), a central bank focused on slack would be wise, IMHO, to target wage growth. Which would lead them to keep their powder dry for now.
The five series are:
Employment Cost Index: Hourly Compensation
Employment Cost Index: Hourly Wages
Productivity Series: Hourly Compensation
Median Weekly Earnings, Full-time Workers
Average Hourly Earnings, Production, Non-Supervisory Workers