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Jobs are growing, but what about wages?

By Sara Potter, CBE, VP, Markets Analysis
Jul 16, 2015

The latest jobs report from the U.S. Bureau of Labor Statistics provided further evidence that the U.S. economic picture continues to improve. The unemployment rate fell to 5.3% in June, its lowest level since April 2008. Nonfarm payrolls grew by 223,000 for the month; this is slightly down from the average 245,000 jobs added monthly over the past 12 months, but any expansion over 200,000 is regarded as a sign of solid economic growth. However, the news is bleaker where wages are concerned; average hourly earnings for all employees grew just 2.0% compared to a year ago.

In fact, many of the new jobs added last month are in lower paying industries. Jobs in the retail trade and leisure and hospitality industries made up one quarter of June's job increases, but average hourly earnings in these two industries are well below the average for service jobs. The average wage for private service jobs was $24.69 per hour in June, compared to $17.42 for retail positions and $14.28 for jobs in leisure and hospitality. Growth is higher for these two sectors than the overall wage increase (2.4% for retail trade and 2.7% for leisure and hospitality compared to a year ago) as competition is heating up for these workers.

Several large employers in these industries, including  Walmart, TJX Companies, Target, McDonald's, and IKEA US, have made headlines over the last year by announcing wage increases for their employees. IKEA US announced an increase in its minimum hourly wage last month, after having presented a new minimum wage structure a year ago that based hourly wages on local living costs for employees. All of these companies have cited tighter job markets and a desire to reduce employee turnover in their decisions to raise wages.

This week Federal Reserve Chair Janet Yellen told the U.S. Congress that given the continued improvement in the labor market, a rate hike could happen this year. However, the Fed is also monitoring price levels; with annual CPI inflation hovering around zero and continued weak wage growth, the greatly anticipated rate hike may get pushed to next year.

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