(By Capital Spectator) The relationship between real (inflation-adjusted) wages and the business cycle is "inconclusive," a recent study
reminds. For example, the empirical literature "finds that the wages of
newly hired workers are more cyclical than wages of workers in ongoing
employment relationships," notes a 2010 paper
from the Federal Reserve Bank of Richmond. But if you're inclined to
see a procyclical link between wage growth and the economy generally,
Friday's income and spending update for April holds out the possibility that all's not yet lost for expecting growth.
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Private-sector wage growth inched higher in April, enough at least to
raise the year-over-year percentage change to 4.1%, or slightly above
the 3.9% annual pace in March in nominal terms. The annual pace of real
wage growth also perked higher in April. Is this a sign of economic
strength that will help carry us through what looks set to be a
turbulent summer? Or is April's pop in wage growth the last gasp of an
economy that's struggling (and failing?) to digest a world full of
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If real wages have any influence on recession risk, perhaps it's no
small advantage that inflation-adjusted wage growth was 1.8% for the
year through April. That's a bit more than twice the rate in December
2007, when the economy peaked just ahead of the Great Recession. A small
edge, perhaps, but if rising wages can help keep a new contraction at
bay, the April numbers are a small bright spot.
Nonetheless, there are plenty of reasons to be cautious. For one
thing, April data now looks ancient in the wake of Friday's discouraging
employment report for May.
We'll have to wait a month to find out how wages fared in May. Of
course, by that time there's a good chance that there'll be a lot less
cyclical mystery otherwise, for good or ill.