You're probably not getting a big raise this year. But don't worry, it's for the good of the economy.


Wage growth has slowed, and inflation has been broadly cooling. It's exactly what the Fed wants to see: The US avoiding a never-ending inflationary wage-price spiral.

Average hourly earnings increased 4.1% between October 2022 and October 2023 per the Bureau of Labor Statistics. That measure of wage growth has steadily slid from the almost 6% year-over-year increases in March 2022 and April 2022.

Additionally, third quarter Employment Cost Index, or ECI, data showed compensation costs for civilian workers rose 4.3% year over year. That's another data point that suggests cooler growth as seen in the chart below.

It's a sign that the worst fears of deeply embedded inflation, where higher prices lead to faster wage growth which in turn leads to even higher prices to pay for those higher wages, are unlikely to come to pass.

The year-over-year figures could even be understating the slowdown in raises. Wage growth is even lower than the year-over-year increase in average hourly earnings when looking at the three-month annualized rate, Julia Pollak, chief economist at ZipRecruiter, said.

It also means the Fed probably won't have to hike rates so hard that it'll cause a recession. So far, the labor market seems to be gradually slowing down without seeing a big increase in layoffs. The Fed announced on November 1 a continued pause in interest rate hikes.

"With the ECI still running north of 4%, labor cost growth remains too high to be consistent with the Fed's 2% inflation target," a report produced by the Economics Group of Wells Fargo Bank said. "However, with demand and supply for labor gradually coming back into balance, we expect growth in compensation costs to slow further ahead, with the recent moderation enough to keep the Fed from additional rate increases."

"Moderating wage and job growth, along with slower demand for goods and services, easing rent inflation and reduced pricing power should lead to further disinflation and argue in favor of the Fed holding the fed funds rate constant in the coming months," Lydia Boussour, a senior economist at EY, said in a commentary. "While Fed policymakers will maintain the optionality of further tightening, we continue to believe that the Fed's tightening cycle is complete."

Additionally, Fed Chair Jerome Powell noted in the FOMC press conference last week that "the staff did not put a recession back in" the forecast as recent activity is "not really indicative of a recession in the near term."

Even with slowing wage growth, workers may finally be seeing their earnings catch up to the big spike in inflation. Year-over-year changes from BLS show there has been real wage growth in recent months, based on average hourly earnings outpacing CPI inflation.

Still, there's a long way to go for workers to fully regain their buying power. Pollak noted recent data that showed "a decline in real disposable income, which suggests that consumer spending may come under pressure in the coming months, which would further cool the labor market."

Nick Bunker, economic research director for North America at the Indeed Hiring Lab, told Insider that "raises are great, but if they don't get you any more purchasing power" that's not ideal.

"I think at least for now, wages are growing more quickly than inflation, which is obviously a nice reverse of what we're seeing earlier this year and last year," Bunker said. "I think if we continue to see wage growth moderate, hopefully, inflation moderates even more, and we continue to see more workers getting more inflation-adjusted raises."

Bunker also pointed to recently released labor productivity data, which he noted the results were strong.

Bunker said "If we are seeing pretty robust labor productivity gains, that means wage growth can still be pretty robust" and wouldn't push up inflation quite as much if the US wasn't seeing as strong productivity gains.

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