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Wages grow at fastest in 3 years

Posted on: January 14, 2006

Wages grow at fastest in 3 years

WASHINGTON — American workers are beginning to
see long-awaited wage gains, though increases remain well below the
levels prior to the 2001 recession.

Average hourly wages for non-supervisory
workers, about 80% of the labor force, have been lagging behind
inflation during much of the recovery. Wage growth is starting to pick
up, with hourly earnings rising 5 cents in December to $16.34,
seasonally adjusted, the Labor Department said Friday.

Hourly wages rose 3.1% in the 12 months ended in
December, the fastest pace since spring 2003. While improving, wage
growth appears to remain below consumer inflation, which advanced 3.5%
in the 12 months ended in November.

The 3.1% gain in hourly wages compares with a
2.6% rise in the year ended in December 2004 and 1.7% in 2003. Still,
wage growth is lower than some economists expect in an economy with a
4.9% jobless rate.

"When you’re looking at wages, it’s clear that
they are moving upward. It may be from a low base, but the trend is
clearly up," says John Silvia of Wachovia.

Silvia emphasizes that broader measures of
compensation, including health care and other benefits, which have been
generally rising faster than wages, paint a better picture of employee
gains and business expenses.

Ken Mayland of ClearView Economics points out
that most of the job gains in December have occurred in industries with
above-average wages, such as manufacturing, mining and information
services. That’s part of a longer trend.

But Maury Harris of UBS argues that some of the
gains in high-wage jobs since August are a result of activities related
to reconstruction from Hurricane Katrina. The effect could fade this
year as the housing market and construction employment slow. Harris
predicts that energy-induced inflation increases have also peaked,
which could lead to better purchasing power for consumers.

The pace of wage gains has implications not just
for workers, but the broader economy. The Federal Reserve closely
monitors labor costs, a big driver of inflation.

Silvia says that while wage gains have been
somewhat muted, the movement is in a direction that could cause some
concern at the central bank.

The Fed doesn’t have a formal inflation target
but has been trying to hold core inflation, which doesn’t include food
and energy to about 1% to 2% a year. "If the Fed is truly serious about
a 2% inflation target … you don’t have a lot of room to play with,"
he says.

Mayland says the wage gain "is not a worrisome situation for the inflation situation."

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