Employee compensation is lagging
The fourth quarter’s 3% year‐to‐year increase in hourly wages and benefits was lower than the 3.7% average increase since 1987, and even lower than the 3.1% norm during the horrific 2008 recession. That casts considerable doubt on the notion that inviting another inverted yield curve recession is a constructive way to bring inflation down. Patience is working fine.
Federal Reserve officials have been downplaying the 2.1% PCE inflation rate of the past six months by (1) expressing concern about select pieces of that average, and (2) suggesting that a generous seasonal adjustment (to statistically erase January’s inevitable large loss of holiday jobs) meant we should now pay less attention to slowing prices and more to an assumed rise in wage inflation.
Now, however, the news about 3% hourly compensation confirms other evidence that inflation is rapidly slowing in labor markets too — just as it has for half a year in the markets for goods and, more recently, in wages and prices in service industries — which had worried Chairman Powell unnecessarily.
Originally published by the Cato Institute. Republished with permission under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
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