The Fuss About Wages Is The Fuss

The latest FOMC policy statement was dominated by a single, added word; “some.” As far as actual policy maneuvers I doubt it will make much of a difference, but it certainly adds more flavor to the growing evidence the US economy isn’t anywhere near close to what it should have been by now. In other words, even the mainstream economic narrative has shifted significantly.

I also have little doubt that the Fed was aware (either directly or through its own, parallel modeling) that wages would so disappoint. The same week that “some” goes into the policy statement about labor “improvement” the BLS’s Employment Cost Index (ECI), a gauge commonly used by the FOMC, rises by the smallest amount in 33 years. Coincidences are common but there is clear purpose here.

Not for lack of trying, but the US “boom” has evaporated once more into “it’s just around the corner.” The New York Times was typical to that effect:

Labor costs in the United States recorded their smallest increase in 33 years during the second quarter as workers were paid less in commissions and bonuses. The tiny gain appeared to be a temporary wage growth setback against the backdrop of diminishing labor market slack.

The rest of the article was spent detailing really how serious this report was in suggesting something not a “temporary wage growth setback.” When the ECI rose in Q1, it was as much commissions and bonuses but nobody had much to say about that then, suggesting which part was actually temporary.

In the second quarter, wages and salaries, which account for 70 percent of employment costs, rose 0.2 percent. That was also the smallest increase on record.


Private sector compensation failed to rise for the first time on record. Compensation in the services industry nudged up 0.1 percent in the second

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