February 21, 2018 glacierinvest

There has been a lot of positive commentary surrounding the January Y/Y wage growth rate reported earlier this month. In general, the uptrend certainly has been encouraging, sowing seeds of optimism among many.

However in looking at the Current Population Survey (CPS) from the BLS, the Y/Y growth rate in real median weekly earnings declined in the fourth quarter.

In an attempt to create a comparable analysis, below is a chart showing real average hourly earnings on a quarterly basis. The growth rate in the fourth quarter was 0.75%.

The average hourly earnings data comes from the Establishment Survey while the average weekly earnings come from the CPS. There are some obvious differences in the two surveys with the main being hourly wages vs. weekly earnings. Weekly earnings are pre-tax and include tips, commissions and overtime received (at the main job in the case of multiple jobs).

While the nominal wage growth trend certainly is encouraging, the real, or inflation adjusted, wage growth trend is less so. The median weekly real earnings trend is even less encouraging although the 4Q17 data point could have been a blip.

So with wages growing and median weekly earnings noticeably softer, are people working less hours, thus negating the perceived positive impact of wage gains? I suppose that could be the case but it doesn’t make a lot of sense at this point in the business cycle. Regardless, real wage growth will be something to keep an eye in the coming months. Hopefully we will see some sort of follow through from the recent wage gains in the 1Q18 median real weekly earnings.