Wages Are Rising Faster than We Thought

The good news is that the personal savings rate is likely higher than previously estimated. But the underlying nominal growth impulse is stronger, despite the continued decline in churn.

Most Americans’ wages have been rising faster than previously estimated—and show no signs of slowing. If the data on consumer spending are not also revised upwards, this means that Americans have likely been saving more than previously believed, and that household balance sheets are correspondingly stronger. It also means that the last 1-2 percentage points of underlying inflation may prove somewhat more persistent than implied by earlier data releases.

The Slowdown that Wasn’t

At the press conference following the most recent Federal Reserve meeting, Jerome Powell was optimistic that wage growth would continue to gradually slow down to a pace that would be consistent with the Fed’s 2% inflation goal. That might happen eventually, but the latest revised data suggest that the process could take longer than some Fed officials anticipate.

Before the revisions, the 12-month growth rate in pay for non-managerial private sector workers outside of retail, leisure, and hospitality looked as if it had slowed down from about 5% at the end of 2022 to 4.5% by the end of 2023.¹ Revisions now imply that wage growth did not slow down and is still running about 5% a year.

Observed 12-month changes can be vulnerable to idiosyncratic events in individual months, which is why I also find it helpful to look at the month-to-month changes as a check.