After stagnating for years, wage gains will accelerate in 2014, a wide majority of leading economists predict in USA TODAY survey.
(USA Today) Tired of getting raises that you can jangle in your pocket? This year may be different.
After stagnating for years, wage gains will accelerate in 2014, a wide majority of leading economists predict in USA TODAY survey. The bigger paychecks should help fuel a more rapid recovery.
"This is kind of the final piece of the puzzle for the consumer," says Scott Anderson, chief economist of Bank of the West.
The 40 economists, surveyed May 2-6, also say economic and job growth will ratchet higher the rest of this year despite an economy that stalled in the first quarter.
Average wages have risen about 2% a year since the recovery began in mid-2009, and have been virtually flat after adjusting for inflation. The modest increases have held back consumer spending, which typically accounts for nearly 70% of U.S. economic activity.
But the jobless rate has been falling rapidly, to 6.3% from 8.1% in August 2012. Anderson is among economists who say that as unemployment approaches 6% by year's end, a more limited supply of available workers will force employers to step up pay hikes.
Last month, average hourly earnings were up just 1.9% from a year ago. But pay for production and supervisory employees rose 2.3% during that period — a sign that wages will drift higher for all types of workers, says economist Michael Gapen of Barclays Capital.
Wage pressures are already building in fields such as technology and construction as employers struggle to find skilled workers, says Stuart Hoffman, chief economist, of The PNC Financial Services Group.
But even low-wage employees could soon benefit from faster-growing paychecks. Since the Affordable Care Act lets workers buy moderately-priced insurance without having a full-time job, many retail, restaurant and other workers are likely to retire or scale back their hours, says Dean Baker, co-director of the Center for Economic and Policy Research. Employers, he says, will have to pay more to attract a smaller pool of remaining workers.
Anderson expects average pay increases of close to 3% this year. Robert Mellman of JPMorgan Chase forecasts more modest advances of about 2.2%.
The wage gains will likely coincide with stronger economic growth. The nation's gross domestic product expanded just 0.1% annualized in the first quarter, but much of the slowdown was temporary. Nearly 90% of the economists surveyed said bad weather affected the economy a lot or a fair amount the first three months of the year.
The economists predict the annual rate of GDP growth will be 3% or more in the current quarter and in the final two quarters of the year, according to their median estimate, the longest such stretch since 2005. They also say monthly job gains will average 210,000 in that period, up from an average 194,000 last year.
Michael Englund, chief economist of Action Economics, cites rising household wealth and lower debt, pent-up demand among businesses for new equipment and fewer federal budget cuts.