New Data Shows Wage Growth Is Down: Will It Be Enough To Get The Federal Reserve To Change Course?

As the Federal Reserve continues to grapple with historically high inflation, new data shows that wage growth may finally be headed lower after accelerating for nearly two years.

What Happened: New data from employment platform Indeed's economic research lab shows that wages appear to be slowing down. The trajectory of wages is critical for policymakers amid the ongoing battle with inflation. 

"A further reduction in wage growth would be a relief for policymakers concerned about high inflation and employers with quickly rising costs," the Indeed report states.

However, the outlook for compensation growth remains unclear. The U.S. labor market continues to show strength, with elevated demand for workers and relatively low levels of joblessness. 

Indeed's economic research lab data shows that layoffs are still low, despite job cuts dominating headlines in recent months. Total monthly layoffs would need to rise by approximately 29% to reach its pre-pandemic average, according to the report.

"Job postings on Indeed were 48.7% above their pre-pandemic baseline as of November 18, signaling vigorous hiring intentions. New job postings, those that have been on Indeed for seven days or less, also reflect a healthy appetite for new hires," the report states.

Although wage growth has started to level off, a significant decline toward pre-pandemic levels doesn't seem likely anytime soon, per Indeed.

Why It Matters: Wednesday's JOLTS data showed that U.S. job openings fell to 10.334 million in October. The number came in below average economist estimates of 10.5 million, according to Benzinga Pro.

Related Link: JOLTS: Number Of Job Openings Down In October, Hires & Separations Change Marginally

Despite the slight month-over-month decline, the labor market is still too hot for the Fed, according to Jeffrey Roach, chief economist at LPL Financial.

"Although the job market appears tight, wage growth has not kept up with the rate of inflation, putting consumers in the awkward position of using savings and credit to maintain spending patterns," Roach said following the JOLTS release.

"Bottom Line: Elevated job openings during a time of an economic slowdown implies that the labor market may remain tight for quite some time."

Roach noted that he expects the Fed to hike rates by 0.5% in its upcoming December meeting. He anticipates that the central bank will continue with additional hikes early next year before considering a pause.

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The Fed's final meeting of the year is set for Dec. 14. Most expect the central bank to opt for a smaller 0.5% rate increase, following an aggressive series of four consecutive 0.75% rate hikes. 

At the central bank's last meeting, Fed chair Jerome Powell said there is still significant uncertainty around the level of interest rates that will be sufficiently restrictive to bring inflation down to its 2% goal.

Powell provided additional insight during a Brookings Institution speech on Wednesday, suggesting the Fed may begin easing back on interest rate hikes starting in December.

The central bank will get a series of new data over the next two weeks, beginning with Friday's jobs report. The Bureau of Labor Statistics is set to release the November nonfarm payroll data at 8:30 a.m. ET Friday, which measures how many jobs were created in the U.S. across a majority of businesses.

Nonfarm payrolls are expected to have increased by 200,000 jobs in November after rising by 261,000 in October, per Reuters. 

SPY Price Action: The SPDR S&P 500 SPY was up 1.99% at $403.12 at the time of publication, according to Benzinga Pro.

Photo: NikolayF.com from Pixabay.