This indicator makes it clear that wage growth is coming

There’s little doubt the US job market is on fire.

Economists forecast Friday’s jobs report will show the economy added over 200,000 jobs for a 13th straight month in March.

But the one laggard in the labour market story has been wage growth. Last week, Deutsche Bank’s Torsten Sl√łk highlighted six charts arguing wage growth is definitely coming.

And in a note Tuesday, Deutsche Bank’s Joseph LaVorgna writes that the short-term unemployment rate — representing those who have been out of work for 6 months or less — points to wage growth finally coming around.

LaVorgna writes:

Importantly, if this narrower measure of unemployment declines by the same amount it has averaged over the last five years, we will be at 3.4% by the end of this year. The reason this matters is that underlying wage pressure may be largely a
function of what happens to short-term unemployed. Once the unemployment rate among people out of work less than six months falls to an extremely low level, as it recently has, employers may be forced to bid up increasingly scarce skilled labour.

LaVorgna adds that there was only one other instance since the second half of the 1960s, when short-term unemployment averaged 3.4%, that the unemployment rate among people who have been out of work for less than six months has been lower (it averaged 3.6% from 1999-2000).

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.