C&W: Wage Rate Poised to Grow

WASHINGTON, DC—Last week the Labor Department delivered another dose of good news about the US economy: In February 275,000 jobs were created. In addition, the unemployment rate dropped to 5.5% from 5.7% in January. The figures overshot estimates from economists that had predicted a total of 240,000 jobs created for the month and a drop to 5.6% for an unemployment rate.

Pessimists about the traction the job market is making point to other factors that are worrisome, and indeed they have a valid case. The wage rate, in particular, has been stagnant for years. One only has to look to the uptick in consumer spending that resulted from the lower gas prices to realize what an oomph a higher-payer job market could do for the economy.

Now a turning point has arrived, as Cushman & Wakefield predicts that wages are poised to grow. It cites several factors including the continuing decline of the unemployment rate to 5.5%m, now the lowest level in almost seven years.

"In addition, the Labor Department's broader unemployment measure -- including those working part time who want full time work and those who are marginally attached to the labor force -- was at 11% in February, the lowest level since September 2008.The last time these unemployment measures were this low, average hourly earnings were increasing at more than a 3.0% annual rate."

The upshot, C&W concluded, is that wage growth is not likely to immediately pick up—but that tighter labor markets usually lead to faster wage growth, "and we expect that to be the case again in 2015."

Indeed, C&W is not alone in its projection. In a separate study, about 70% of CFOs surveyed in Duke University/CFO Magazine's global business quarterly outlook said they expect they will have to increase worker pay by at least 3% in the coming months. In addition, 63% said that their companies recently increased or plan to raise wages shortly; 26% of those respondents said they did so because they were having trouble attracting or retaining skilled employees.

"Finally, we are starting to see wage growth for employees that outstrips inflation," says John Graham, a finance professor at Duke's Fuqua School of Business, in a statement. "Given that CFOs expect continued strong employment growth, it is surprising that wage pressures are not even greater."

A call to C&W was not returned in time for publication.