Salaries Positioned to Rise in 2016 as Economic Recovery Continues


NEW YORK—Even as the recovery from the Great Recession brought corporate profits, most workers' salaries have marginally kept pace with inflation. As the nation continues to more closer to full employment and with layoffs near historical lows, there are prominent indicators suggesting that lower paid workers are starting to see some of the gains of the nearly 7 year-old recovery.

It should not be surprising that wages are creeping higher. The labor market has been tightening across the country, forcing more employers to offer higher pay to recruit and retain workers. Thirteen states had a jobless rate of 4 percent or less in November, up from 5 percent a year earlier.

A variety of wage and salary statistics, from payroll processors, private analysts and Federal Reserve researchers, indicate that the underlying rate of pay increase for workers has been picking up much more in the last year than was widely viewed. Some researchers now believe 2016 will be a breakout year for wage growth.

Moody's estimated that the average pay for full-time workers who have kept their jobs grew 4.1 percent in the third quarter from a year earlier. That's about double the hourly wage increase for all private-sector workers as reported by the Bureau of Labor Statistics, which produces the most commonly cited figures on workers' earnings. Moody's relies on records of 24 million existing employees from the payroll processor ADP. And they exclude new hires who may be replacing higher-paid Baby Boomers retiring from their jobs.

If average workers' pay does rise significantly, it should give a nice boost to consumer spending, the key driver of U.S. economic growth. It should also increase consumption among lower- and middle-income households, providing a more balanced pattern of spending that for years has been skewed to wealthier households. And deferred purchases, like eyewear, may very well see a nice spike in ECP sales in 2016.

Hedley Lawson, Contributing Editor
Managing Partner
Aligned Growth Partners, LLC
(707) 217-0979