Wage growth appears to be slowing across the United States, according to a report that the U.S. Bureau of Labor Statistics released Tuesday.
Civilian workers saw their wages increase on average by just 1% during the final quarter of 2022 (October-December). That was flat from the 1% wage increase reported during the third quarter of 2022, but down overall from the 5.1% increase for the year, and from the 4% growth in wages reported in December 2021.
Wages for private industry workers in the New York City area grew 5% year-over-year in 2022, according to the BLS.
Gains in wages are a major indicator of economic health, and while the 1% growth in the last quarter of 2022 is still a positive development, it’s also a possible harbinger of a slowing U.S. economy.
According to the Associated Press, Federal Reserve Chair Jerome Powell had cited the growth of wages and labor costs as a major factor in the decision to raise interest rates to combat the dangerous economic side effects of inflation.
Over the past year, the Federal Reserve had repeatedly increased interest rates in a delicate balancing act designed to continue economic growth and reduce the inflation rate while simultaneously staving off, or even averting altogether, a recession.
Interest rates impact borrowing costs for everyone from homebuyers to large businesses looking to raise capital. Lower rates mean more liquidity in the economic system, which can be a contributing factor to inflation.
And The Fed’s efforts appear to get inflation under control appear be working in concert with the ongoing recovery from supply shortages and other pandemic-related economic impacts.
Inflation rates have fallen in the United States during the last six months of 2022, from a high of 9.06% in June to 6.454% in December.
Now that wage growth is slowing and inflation is ebbing, it’s believed the Federal Reserve may follow suit and begin reducing future interest rate hikes, The Hill reported.
It’s expected that the Federal Reserve will vote Wednesday to approve a 0.25% interest rate hike, according to The Hill. Such an increase would be a quarter-point lower than the 0.5% hike approved in December 2022.
“The Fed is still likely to keep raising interest rates at the next couple of meetings, but we expect a further slowdown in wage growth over the coming months to convince officials to pause the tightening cycle after the March meeting,” Andrew Hunter, an economist at Capital Economics, told the Associated Press.