As job market tightens, wages rise

Sources: Bloomberg, Bureau of Economic Analysis, Bureau of Labor Statistics, U.S. Commerce Department, and Wells Fargo Investment Institute. Wage growth: monthly data from January 1, 2010 to August 31, 2021. Capital spending plans: monthly data from January 1, 2019 to September 30, 2021. Capital equipment orders: monthly data from January 1, 2019 to August 31, 2021. Compensation/corporate income: quarterly data from January 1, 1980 to June 30, 2021. Job growth: quarterly data from January 1, 1980 to September 30, 2021. Unemployment rate: monthly data from January 1, 2010 to September 30, 2021. YoY = year-over-year. Capital spending plans represented by three month moving average of a diffusion index of Dallas, Kansas City, N.Y., Philadelphia, and Richmond Fed district respondents reporting planned increase. Capital equipment orders represented by three month moving average of non-defense equipment, ex. aircraft.

Key Takeaways

  • Business investment has held up remarkably well throughout this economic cycle. Equipment orders have moved well above their pre-pandemic levels, supported by impressive gains in capital spending plans.
  • Labor-market dislocations pressure wages, even as unemployment remains higher than pre-pandemic levels.
  • Labor shortages created by this year’s powerful recovery are boosting wages in lower-paying services industries dominated by less-skilled workers who were most exposed to the pandemic-induced recession in 2020.