US wage growth continues slowdown, data shows

Travis Walker: Workers' market isn't as strong as a couple years ago.

Charles Gascon: Slower wage growth stems from lower expected inflation.

• 
• 

Wage growth has consistently outpaced the consumer price index in the last 18 months, according to federal data. Still, the growth level for median wages in the U.S. is reducing, keeping in line with the slowing inflationary pace since reaching a 9% peak in June 2022, according to the U.S. Bureau of Labor Statistics.

The BLS reported a 0.2% monthly increase in October and 2.6% annual increase for the inflation rate. The federal agency also recently noted wages and salaries increased 3.9% for the 12 months ending September 2024, a drop from the 4.6% growth rate for the 12-month period ending in September 2023.

Inflation-adjusted average hourly earnings for workers increased 0.1% month-over-month in October and 1.4% from a year prior. The $35.46 hourly average wage is up 24% from the prepandemic earnings.

“If we look back on a couple years ago, I think wage growth was related to employers being sensitive to inflation and wanting to provide compensation increases that were helping their employees at least keep pace with inflation,” said Travis Walker, shareholder with KPM CPAs & Advisors. “And then understanding that there was certainly in some industries pretty intense competition for employees, so that was driving that as well.

“The sense was – I think we saw this with our clients and just internally in our business – employees were looking for higher wages and would take opportunities with other companies to get raises,” he said. “You had to meet that demand.”

When splitting the workforce, the median wage gain in October was 4.6% for those who stayed in the same job, and 6.2% for people who switched jobs, according to payroll services company ADP Research Institute. The percentages in both categories declined from a year prior, as the median wage gain was 5.8% for job stayers and 8.4% for job changers in October 2023.

Slower wage growth stems from lower expected inflation, which is partially driven by lower actual inflation, said Charles Gascon, economist and research officer at the Federal Reserve Bank of St. Louis. U.S. labor productivity also is on the rise, he said. Nonfarm business sector labor productivity increased in the third quarter of 2024, up 2.2% from the previous quarter, according to the BLS.

“Wage growth can be broken into two key factors: labor productivity growth plus inflation expectations,” Gascon said via email. “In other words, workers expect to see their wages keep up with expected increases in their cost of living, and if they are more productive than the prior year, they deserve to earn a higher wage.”

Locally, wages in Greene County increased 6.8% to $1,117 per week during the first quarter of the year, according to BLS data. By percentage change, the county ranked No. 16 among the 369 largest counties nationwide. Of the largest U.S. counties, 357 had year-over-year increases in average weekly wages during the quarter.

While the wage growth rate is slowing nationally, officials still consider it a workers’ market, as job openings continue to outnumber those looking for work.

The ratio has dropped from its March 2022 peak of two job openings per unemployed person. At that time, employers sought workers as pent-up consumer demand strained supply chains and contributed to higher prices. However, the ratio now is near the same level as its 2019 average of 1.2, according to a St. Louis Fed blog post from July.

“I would say it’s probably not as strong of a workers’ market as it was a couple of years ago,” Walker said. “So, it’s probably come back into balance.”

He said he’s uncertain of what impact, if any, the pending minimum wage increase in the state will have for those not currently earning the $12.30 hourly rate. Missouri voters this month passed Proposition A, which will boost the state’s minimum wage on Jan. 1, 2025, to $13.75 per hour. An additional increase of $1.25 is coming in 2026, according to the ballot language, rising the hourly wage to $15. Thereafter, the minimum wage would again be adjusted based on the CPI.

“The employer’s going to be looking at, well, what’s the value of that job,” he said, adding they may resist increasing pay beyond minimum wage if it is considered an entry-level position.

Heading into 2025, Walker said he sees any potential workforce challenges for wages and employment as a direct connection to the state of the economy. Wages should continue to outpace inflation for at least the short term, he said.

“The challenges would be that compensation adjustments or annual type of wage increases likely would be tied to an inflation number, and whether that really keeps pace with the person’s true cost of living,” he said.

Gascon said labor costs are something to monitor into the new year.

“If labor costs – wages plus benefits – increase faster than other costs and business revenues, then businesses are more likely to reduce their demand for labor, either by reducing hours/overtime or hiring fewer workers,” he said.