Wage Trend Indicator Forecasts Upward Trend in Wage Hikes

October 13, 2011 (PLANSPONSOR.com) - The rate of private sector wage growth should improve modestly in early 2012, according to the third quarter Wage Trend Indicator (WTI) released by BNA.

The WTI climbed to 98.36 (second quarter 1976 = 100) from 98.21 in the second quarter, marking the forward-looking index’s fifth consecutive gain.

“The latest WTI is signaling upward pressure on wages in the coming months, although the economy is going to need to improve a bit,” Economist Kathryn Kobe, a consultant who maintains and helped develop BNA’s WTI database, said in a press release. “Right now, we’re still looking at incrementally slow progress in the labor market,” she added.

Even with the pickup in wage gains, the annual rate of growth for private sector workers is not expected to exceed 2%. In the second quarter, the most recent data available show wages and salaries grew 1.7% year-over-year, as measured by the Department of Labor’s employment cost index (ECI).

Reflecting recent labor market conditions, six of the WTI’s seven components made positive contributions to the final third quarter reading, while one factor was negative.

Over its history, the WTI has predicted a turning point in wage trends six to nine months before the trends are apparent in the ECI. A sustained decline in the WTI is predictive of a deceleration in the rate of private sector wage increases, while a sustained increase forecasts greater pressure to raise wages.

Contributions of Components
of the WTI’s seven components, the six positive contributors to the final third quarter reading were the unemployment rate, job losers as a share of the labor force, and average hourly earnings of production and nonsupervisory workers, all reported by DoL; the share of employers planning to hire production and service workers in the coming months and the proportion of employers reporting difficulty in filling professional and technical jobs, both tracked by BNA’s quarterly employment outlook survey; and economic forecasters’ expectations for the rate of inflation, compiled by the Federal Reserve Bank of Philadelphia. The negative factor was industrial production, measured by the Federal Reserve Board.

More information on the Wage Trend Indicator is available at http://www.wagetrendindicator.com.