Finally, US paychecks are starting to grow

While the US economy has been growing, many Americans haven't felt an increase in wages. But that is slowly changing, and could accelerate in 2016. 

One of the most persistent weak spots in the United States economy – wages – might be finally turning a corner from stagnation toward the kind of growth many Americans might actually notice in their paychecks.

Economists call the signs of faster pay gains tentative, but they see reasons for hope.

One piece of evidence landed this week, as the Commerce Department reported that the total of all wages paid in the US grew by 0.5 percent in the month of November, after adjusting for inflation – adding to a string of sturdy gains this year.

Other key measures, such as hourly pay rates, have shown at least modest acceleration. And forecasters anticipate more progress in 2016. A key reason is that, as the job market tightens, employers typically start competing harder to retain good workers. 

“The US economy is posting solid numbers in important places,” economist Jared Bernstein wrote in an online commentary this week. “We’re adding around 200,000 jobs per month, which is more than enough to put downward pressure on the remaining slack in the job market…. If the job market continues to tighten, wages will pick up.”

Some parts of the country, including Lincoln, Neb., are already proving the concept, says Mr. Bernstein, a former Obama administration adviser now with the Center on Budget and Policy Priorities. The city has an unemployment rate of 2.3 percent. Lincoln is one of 31 US cities with an unemployment rate below 3 percent – up from 18 such cities last year, The Wall Street Journal reports. 

If it comes, higher wage growth nationally would be welcome for workers who for years have been treading water more often than pocketing substantial pay gains.

Heading into this holiday season, a higher salary tops the wish list for 39 percent of employed Americans, according to a Bankrate.com survey. That priority was followed by better health insurance (18 percent), and a better work/life balance (16 percent).

Americans have been helped lately by falling gasoline prices and generally low inflation across the board. But some key costs for working families are still high and rising: child care, health care, tuition, housing. 

Against that backdrop, the pay gains that have happened so far in the post-2009 economic expansion haven’t felt very substantial.

Even now, not every forecaster is sure that a corner is being turned.

“We’ve yet to witness any definitive signs of a pick-up in wage growth,” Paul Ashworth and Steve Murphy recently wrote in an analysis for Capital Economics.

But the Toronto-based economists do see one indicator that points toward likely acceleration for US wages in 2016: A high and rising share of employers say labor quality is their biggest problem. The forecasters see year-over-year growth in hourly pay possibly rising above 3 percent by the end of next year.

Others have similar predictions for 2016 wage growth – a bit below or above 3 percent.

Already, some  improvement on the wage front has been happening under the radar, as unemployment has declined:

• The trend of average hourly earnings has been sloping upward (accelerating in year-over-year growth rates) basically since the recovery began, according to a “wage tracker” created by the Federal Reserve Bank of Atlanta, drawing on Labor Department data. Early on in the recovery, the gains were marginal, but by 2014 and 2015 the story has become better.
• Inflation-adjusted wage growth, while modest, has also shown some acceleration. Real hourly earnings have shifted from declining (for much of 2011) to flat (2012, 2013) to gains that in the past year have started to hit a 2 percent annual pace.
• A broader “employment cost index,” including benefits as well as wages, is also perking up, with a 1.9 percent year-over-year gain as of September, even adjusting for inflation.