"Although this recovery is following the general pattern of past ones, the job market is making a very slow climb out of a very deep hole," economist Kathryn Kobe, a consultant who maintains and helped develop BNA's WTI database, said. In addition, businesses continue to have difficulty borrowing money to start up or expand, "which also complicates the task of getting job growth rolling," Kobe said.
Year-over-year wage and salary increases for private sector employees in the coming months are expected to remain at or below 1.5 percent, the rate for the 12 months ended in March as measured by the Department of Labor's employment cost index (ECI). Although wage growth could slow further — to the record low of 1.4 percent in 2009 or less — it probably won't fall below 1.0 percent, Kobe said.
Reflecting recent labor market conditions, four of the WTI's seven components made negative contributions to the revised final quarter reading, outweighing three positive components.
Over its history, the WTI has predicted a turning point in wage trends six to nine months before the trends are apparent in the ECI. A sustained decline in the WTI is predictive of a deceleration in the rate of private sector wage increases, while a sustained increase forecasts greater pressure to raise wages.
Contributions of Components
Of the WTI's seven components, the four negative contributors to the final second quarter reading were the unemployment rate and average hourly earnings of production and nonsupervisory workers, both reported by DOL; industrial production, measured by the Federal Reserve Board; and the proportion of employers reporting difficulty in filling professional and technical jobs, tracked by BNA's quarterly Employment Outlook Survey.
The three positive components were job losers as a share of the labor force, from DOL; economic forecasters' expectations for the rate of inflation, compiled by the Federal Reserve Bank of Philadelphia; and the share of employers planning to hire production and service workers in the coming months, also shown in BNA's employment survey.
BNA's Wage Trend Indicator™ is designed to serve as a yardstick for employers, analysts, and policymakers to identify turning points in private sector wage patterns. It also provides timely information for business and human resource analysts and executives as they plan for year-to-year changes in compensation costs.
