U.S. wage growth has slowed sharply over the past year and is getting closer to returning to its pre-pandemic level, according to new data from career site Indeed.
The wage tracker – based on salaries for job advertisements listed on Indeed – showed that salaries were up 3.3% in February compared with the same time one year ago. That is a marked drop from January 2022, when wages were up about 9.3%, suggesting that employers are facing less competition for new hires.
“The pace of deceleration is striking,” wrote Indeed labor economist Nick Bunker. “Posted wage growth has fallen by almost 3 percentage points over the past year.”
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While the deceleration is broad-based, it is most pronounced in low-wage sectors. Posted pay for that group tumbled to 3.4% in February from 12.5% at the start of 2022.
“Given the huge run-up in posted wages for those sectors, wage growth is still above its pre-pandemic pace,” Bunker said. “How long this will last is uncertain.”
By comparison, wage growth for high-wage employees dropped from a high of 8.2% to 2.6% in February. For middle-wage workers, year-over-year growth has fallen to 3.9% from a peak of 8.5%.
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The labor market has remained historically tight over the past year, defying economists’ expectations for a slowdown. Economists anticipate the labor market will continue to slow in the coming months as higher interest rates work their way through the economy.
The Federal Reserve raised interest rates 11 times beginning in March 2022 in an effort to rein in inflation and cool the labor market. Policymakers have suggested that fast wage growth – the product of a strong labor market – was a contributing factor to the inflation crisis that ravaged millions of Americans’ pocketbooks over the past few years.
There are growing signs the labor market is beginning to weaken in the face of higher interest rates and stubborn inflation.
There has been a wave of notable layoffs since the start of the new year, and the list grows longer by the day. Alphabet, Amazon, American Airlines, Citigroup, Snap and UPS are among the major companies cutting jobs.
Still, job growth has proven surprisingly resilient.
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Employers added 275,000 jobs in February, although the unemployment rate rose to 3.9%, according to Labor Department data released at the start of March. The report painted a picture of a job market that has gone largely unscathed despite higher interest rates, but it also diminished the odds of a more aggressive rate cut.
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