Wages for American workers still look like they are about to go higher

In January, average hourly wages grew 0.5% over the prior month, the biggest month-on-month increase since November 2008.

But the latest small business optimism report from the National Federation of Independent Businesses showed that the outlook for future wage growth isn’t quite as strong, though the trend is wages is still higher.

In its latest report, the NFIB said the following of wages:

“Earnings trends worsened by 4 percentage points, reaching a net negative 19 per cent. Labour costs continue to put pressure on the bottom line but
energy prices are down a lot. Two per cent reported reduced worker
compensation and 25 per cent reported raising compensation, yielding a seasonally adjusted net 25 per cent reporting higher compensation, unchanged from December. A seasonally adjusted net 12 per cent plan to
raise compensation in the coming months (down 5 points).”

Over the last several months, economists have looked to the NFIB report as a key indicator for future wage growth.

Following Tuesday’s report, Ian Shepherdson at Pantheon Macro said the outlook for wage growth is still strong, writing that, “Expected worker comp fell by a hefty 5 points to 12, but actual comp was unchanged at an elevated +25, consistent with wage growth in excess of 3%. There’s no tendency for the reported comp number to lag expected comp; they trend together and the trend is upwards.”

Indications on the broader labour market were also still strong in the report, which said: “Twenty-six per cent of all owners reported job openings they could not fill in the current period, up 1 point and a very solid reading. The net per cent of owners planning to create new jobs gave up 1 point from December’s excellent reading, providing evidence that the December number was not a fluke. A net 14 per cent planning to create new jobs is a strong reading.”

Overall, however, Tuesday’s NFIB report was a bit disappointing, with the headline optimism index retreating to 97.9 in January from 100.4 in the final month of 2014.

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