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, 2022. Capital spending plans and real capital equipment orders: monthly data from January 1, 2019 to August 31, 2022. Compensation/corporate income: quarterly data from January 1, 1980 to June 30, 2022. Job growth: quarterly data from January 1, 1980 to September 30, 2022. Unemployment rate: monthly data from January 1, 2010 to September, 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. Real capital equipment orders represented by three month moving average of non-defense equipment shipments (for example, aircraft).

Key Takeaways

  • Investment spending has been losing momentum in recent months on economic outlook uncertainties into 2023, apparently from diminishing capital spending plans and from declines in inflation-adjusted capital goods orders.
  • Labor-market dislocations have pressured wages higher, even as unemployment has hovered near its pre-pandemic level.
  • Labor shortages created by last 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.