A U.S. economic recovery seems to coming together, but one key piece is still missing: wage growth.
On Friday, economists will get a fresh read on the U.S. recovery when the federal government issues reports detailing fourth-quarter gross domestic product and other data. They aren’t necessarily expecting GDP to match the third-quarter’s robust 3.9% increase, but most foresee healthy economic growth.
Assuming no major surprises in that department, however, all eyes will be looking past the headline number at something else: the Employment Cost Index.
The index, published by the Labor Department, is a measure of overall employment costs, including wage but also benefits like health care. While the index logged steady growth of 3% to 4% a year in the middle of the previous decade, the rate plunged to less than 2% after the financial crisis and has remained stubbornly stuck in that range ever since. One big reason, says Wells Fargo economist Sam Bullard, is that even as the recovering economy added jobs, they’ve tended to be lower wage, part-time gigs like waiting tables, flipping burgers, and staffing retail stores. “The caliber isn’t the same,” he says.
The good news is that the index posted two consecutive quarters above 2% annual growth — including 2.3% in the third quarter. Bullard says economists and traders will be looking for Friday’s fourth quarter number to match or exceed that 2.3%.
If it does, it’s yet another reason to believe the U.S. economy is on the right path—and that the gains could potentially be more widely shared across the income spectrum.
It would also likely to be regarded as a sign that the Federal Reserve, which on Wednesday reiterated its cautious stance on raising rates, could move sooner rather than later.