Get ready for higher wages

Screen Shot 2015 03 10 at 9.20.57 AMNFIBThe net per cent of companies that increased wages in the past three months was 20.

Wages look like they’re about to go up.

According to the National Federation of Independent Business’s Small Business Economic Trends report, all signs point to labour market tightening.

While there are lots of jobs available, employers are having trouble finding good workers to fill the positions they have open.

Importantly, survey respondents are explicitly saying compensation is rising.

Here are comments on the tight labour market from the report:

Fifty-three per cent reported hiring or trying to hire (up 5 points), but 47 per cent reported few or no qualified applicants for the positions they were trying to fill. Twelve per cent reported using temporary workers, down 2 points. A net 12 per cent planning to create new jobs, down 2 points but a solid reading. Twenty-nine per cent of all owners reported job openings they could not fill in the current period, up 3 points and the highest reading since April 2006. Fourteen per cent cited the availability of qualified labour as their top business problem, the highest since September 2007. The job openings figure is one of the highest in 40 years and this suggests that labour markets are tightening and that there will be more pressure on compensation in the coming months.

On wages going up:

Labour costs continue to put pressure on the bottom line but energy prices are down a lot. Four per cent reported reduced worker compensation and 26 per cent reported raising compensation. This should begin to show up in wage growth, although rising benefits offset potential increases in take-home pay. A seasonally adjusted net 14 per cent plan to raise compensation in the coming months (up 2 points). The reported gains in compensation are still in the range typical of an economy with reasonable growth, and labour market conditions are suggestive of a tightening, which will put further upward pressure on compensation along with government regulations including the healthcare law.

That said, the headline number — the optimism index — rose only 0.1 from January’s report, to 98.0. That was off from the 98.9 expected, but was likely due to weather.

Here’s Pantheon Macroeconomic’s Ian Shepherdson after the report:

The details for Feb show only modest changes in the key headline components, with a 3-point increase in jobs-hard-to-fill -released last week in the NFIB jobs report – offset by trivial declines in sales and economic expectations,and hiring plans. Capex intentions were unchanged; the trend is rising, but painfully slowly. Actual comp – not a headline component – dropped 5 points but expectations rose 2; these numbers are more volatile than the jobs-hard-to-fill number, which is now at its highest since April 2006. It clearly signals accelerating wage gains, and the [Employment Cost Index] wage component is beginning to move up in response.

Here’s a chart from Shepherdson comparing NFIB compensation expectations to actual wage growth:

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