WSJ Survey: Full Employment First, Faster Wage Growth Next – Real Time Economics

The U.S. economy will finally reach full employment in 2015, economists said in this month’s Wall Street Journal survey of forecasters. That means wage growth will finally break out of its lackluster 2% annual pace seen throughout this expansion, they said.

Picking the exact jobless rate to indicate the economy is using all available labor can be like shooting at a moving target. Demographics, technology and productivity can change the equation. (Plus, there is always some unemployment caused by people who quit one job and take time to find a new one and by some job-seekers who have not acquired the skills needed by employers.) But the Federal Reserve in January said policymakers’ estimates of the longer-run normal rate of unemployment had a “central tendency” of 5.2% to 5.5%.

The U.S. hit the Fed’s upper range in February when the official rate fell to 5.5%. That probably won’t change Fed officials’ thinking on policy.  But economists think the decline in joblessness will continue. The average forecast thinks the rate will drop to 5.4% by June and 5.1% in December. If the projection is correct, the economy will be below the Fed’s key range sometime in the fourth quarter.

Faced with tighter labor markets, employers will finally start to increase wages to attract and retain staff. Nationwide economist David Berson projects average hourly pay will be growing 2.5% by year’s end.

“That may not seem like much, but it would be the strongest 12-month gain since 2009,” he says, adding because inflation will remain low, the increase in real spending power will be even greater.

Related reading:

WSJ Survey: Economists See Dollar Strength, Global Weakness Restraining U.S. Growth

WSJ Survey: No Polar Redux for Winter Growth

WSJ Graphics: Economic Forecasting Survey

 


 


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12 March 2015 | 6:01 pm – Source: blogs.wsj.com

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