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 March 31, 2022. Capital spending plans: monthly data from January 1, 2019 to March 31, 2022. Capital equipment orders: monthly data from January 1, 2019 to February 28, 2022. Compensation/corporate income: quarterly data from January 1, 1980 to December 31, 2021. Job growth: quarterly data from January 1, 1980 to March 31, 2022. Unemployment rate: monthly data from January 1, 2010 to March 31, 2022. 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 (for example, aircraft).

Key Takeaways

  • Gains in business investment have cooled, recently. However, equipment orders have continued to hold up well, still above their pre-pandemic levels, supported by impressive strength 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.