- Small business owners facing labor shortages and the highest inflation in three decades pushed up wages at a record 4.1% annual rate in November, according to an index of payroll data from 350,000 companies.
- Average hourly earnings at businesses with fewer than 50 employees rose last month to $29.88, a gain of $1.17 compared with November 2020 and the biggest percentage increase since the start of the data series in 2011, according to the index, the Paychex | IHS Markit Small Business Employment Watch.
- “Employers are responding to tight labor conditions with higher wages,” according to Martin Mucci, CEO at Paychex, a provider of software-as-service for payroll. Pay gains will help “many Americans who are seeing higher costs for goods this holiday season due to supply chain and inflation pressures.”
CFOs are recalibrating wages for the new year as the economy rebounds from a sharp, pandemic-induced downturn and runs hot with inflation.
Supply chain bottlenecks have triggered price gains. Meanwhile, the slow return of workers from coronavirus lockdowns has led to labor shortages, competition for employees and an increase in wages.
The proportion of small businesses that raised pay in October hit a 48-year high, with a net 44% increasing compensation and a net 32% planning to do so in the next three months, the National Federation of Independent Business said last month.
“Particularly at the lower end of the wage spectrum, we are seeing wages move up,” Federal Reserve Chair Jerome Powell said Wednesday in testimony to the House Financial Services Committee. “At this point, we don't see them moving up at a troubling rate that would tend to spark higher inflation, but that's something we're watching very carefully.”
Leisure and hospitality businesses pushed up wages by 9.2% in November compared with 12 months before, according to the Paychex and IHS Markit index. Businesses involved in trade, transportation and utilities raised wages by 5.2%, while manufacturers increased wages by 4.5%.
The central bank this month will probably consider reducing stimulus faster than planned to ensure inflation does not become “entrenched” in the economy through a self-reinforcing spiral of wages and prices, Powell said Tuesday in testimony to the Senate Banking Committee.
“The threat of persistently higher inflation has grown,” Powell said Tuesday, noting “a rapid improvement in many labor market indicators without an accompanying addition of labor supply and also strong spending that indicates growth — big, significant growth — in coming months.”
Fed policymakers at their Dec. 14-15 meeting will probably discuss accelerating the wind-down of monthly asset purchases, now on track to end in June, Powell said. The Fed would do well to no longer refer to inflation as “transitory,” he said, adding that central bank economists had underestimated how supply-side constraints would spur price increases.
Echoing the Fed, the Organization for Economic Cooperation and Development (OECD) said Wednesday that inflation will be more severe and persistent than it had expected.
The OECD raised its estimate for consumer price inflation in the U.S. next year to 4.4% from 3.1% in its forecast in September. Inflation in 2023 will probably slow to 2.5%, persisting above the Fed’s long-term target of 2%.
The consumer price index in October rose at a 6.2% annual rate, according to the Labor Department. The Fed’s preferred measure of price gains — the core personal consumption expenditures price index — increased 4.1% in October compared with the prior year.
Republicans on the House Financial Services Committee on Wednesday called on Powell and Treasury Secretary Janet Yellen to rein in price gains.
“Inflation is destroying Americans’ ability to save for retirement, buy a home or build wealth,” Rep. Tom Emmer (R-MN) said. “It's an enormous burden on working Americans.”
Fed policymakers will do what is needed to prevent inflation from taking root in the economy, Powell said.
“We are committed to our price stability goal,” he said. “We will use our tools both to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.”