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In many ways this is the best economic data since the beginning of the recession. The Labor Department reports that unit labor costs have risen above the level of inflation for the first time since the end of 2008. And much of that can be attributed to higher wages, according to the Wall Street Journal.
Labor also revised up unit labor costs. For just the fourth quarter, unit costs grew at an annual rate of 2.8%, more than double the 1.2% reported a month ago. The large upward refiguring of unit labor costs, now rising at the fastest pace since late 2008, came from an upward revision to compensation.
The data highlight a challenge in the outlook: Adding new [usually less experienced] workers tends to lower overall productivity and raise unit labor costs. Left unchecked, rising unit costs will push up inflation pressures and cut into profit margins, creating headaches for the Federal Reserve and U.S. companies alike.
This being a WSJ article, the problems of the Federal Reserve and corporations are highlighted. The worker benefits from higher compensation which is coming about from a variety of factors. The improving labor market gives workers more bargaining power to ask for salary increases. And it puts more money in their pockets, which they have a high propensity to spend, increasing consumer spending. This is the start of creating a virtuous circle. Higher labor costs could chill more job hiring, but if there’s money to be made off of more consumer spending, companies will eat the labor costs and still turn a profit.
There are also signs that consumer credit has expanded, and if that means overleveraging, it’s probably a bad sign. But if it means that consumers have more confidence that they can handle their debts because of increased job opportunity and higher wages, that could be a good sign.
Corporations made money during the recession by squeezing as much productivity as possible out of workers. Productivity growth has now slowed, which means that profits may drop, but also that workers will have to be hired to meet rising demand. That’s a good economic story, despite the few less coins in the pockets of corporate executives.
The Bureau of Labor Statistics will release the jobs numbers for February tomorrow morning.
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Politics aside, I think people should be acutely afraid that we are going down the same road we went down before vis-a-vis the commodities spike.
even Keynes will tell you that the risk of pump priming is inflation, which can paradoxically crush aggregate demand.
which means the prime rate will go up
no kidding, that’s what this means, the reason the prime has remained low has been negative wage pressure, once wage pressure increases the fed raises rates
the only reason rates might not rise is the fact that president obama wants as strong recovery as possible and rising rates will slow any issusion of growth down
I would say “grab some popcorn” but this is not going to be fun when they anounce “slight borrowing rate increases”
what crushes aggragate demand is lower wages or fear for keeping/finding/losing your job
the only thing wrong with this economy is the lack of jobs and fair wages, which the president helped cause by shedding government union jobs
An optimistic report on wages from the Ministry of (Dis)Information. How comforting.
Of course we are unless some folks have the smarts to invest in things that lower the cost of doing business in the future. Taking profits totally out of labor costs kills consumer demand.
“Light at the end of the tunnel.”
Watch out, that’s a train heading straight at you at full speed.
In talking with a former co-worker he just got the first raise in 3 yrs and it was 3%. It’s good thing the cost of living has stayed steady;)
I wonder about this stat. Is the higher labor cost a result of things like higher cost health coverage?
We have not come close to wage push inflation since the 70′s – and not really then.
The rich and corporate demand action if wages increase, but not if profit on capital increases. It is about time there is is some movement of the needle in the direction of wages and away from capital.
And again – no one can point to wage push inflation coming from anything the Fed does – or indeed coming from anything at all. Our unions are much too weak to even pretend they control enough to cause inflation.
That is because there has been a (deliberate?) conflation of supply-demand pressures that force wages and prices up and monetary inflation.
The Obama administration will pull all stops to ensure that there will be a modest improvement in the economy between now and the November election. After that, expect a double dip to at least the 2008 lows–because that is how the 0.01% benefits most handsomely, both in terms of wealth and power.