After catching up on wages, US companies may have found their footing

At the height of the pandemic’s labor shortage, convenience store chain Sprint Mart struggled to staff its stores across the southern United States as available workers moved toward higher-than-average wages. Amazon.com Inc offers in its fulfillment centers or opted for flexible gig economy jobs.

It took two years, sequential pay increases totaling 20-30%, and new self-scheduling software, but Sprint Mart’s head of human resources, Chris McKinney, said the Mississippi-based company left behind the problems, with a stable workforce of around 1,400 and enough applications waiting to account for the turnover.

”We started to gain traction six or nine months ago, getting back to where we thought we needed to be.after the headcount dropped to 1,100 employees, he said.

“We are receiving the applications, and right now we are not chasing an endless increase in hourly wages.to”.

In the Federal Reserve’s quest to rein in inflation and find a stopping point for interest rate hikes, few dynamics will be as important as Sprint Mart’s in luring workers back to blue-chip service-type jobs. line most affected by the pandemic.

Fed policymakers, including Chairman Jerome Powell, have pointed to wage and hiring trends in the broader service sector as critical to their inflation outlook and thus monetary policy.

While there is disagreement about the degree to which wage increases directly influence price rises, Powell in particular has said that the recent pace of wage growth – between 4.4% and more than 6% per year by two common measures – is inconsistent with the Fed’s inflation mandate.

That objective is defined as an annual increase of 2% in the price index for personal consumption expenditures, which in January was growing at an annual rate of 54%.

This week, Powell will present his semiannual report to Congress on monetary policy and the economy to the Senate Banking Committee on Tuesday and to the House Financial Services Committee on Wednesday.

If the Sprint Mart experience is any indication, the tide may be slowly improving in the Fed’s favor as companies gradually finish the wage, benefit, and working conditions adjustments necessary to remain competitive in the post-pandemic economy. and, as McKinney said, “loosen the accelerator”.

The companies “they want to have more workers than less. This is a general proposal”, Raphael Bostic, president of the Atlanta Fed, told reporters last week.

However, alsothey hope to slow the pace of wage increases and eventually normalize it… We’re hearing a lot of consensus that this is still in recovery mode and will temper”.

-Provisional signs-

Although the overall job market remains tight, with millions more workers needed than are available, Atlanta Fed Vice President and Chief Economist Jon Willis said recent data and surveys show good reason to think that wage growth will continue to slow down.

After the adjustments of the time of the pandemic, companies “they are well aware that they do not want to skew salaries too far from long-term plans“, he claimed.

Data such as the recent rise in the number of people turning to part-time work suggest that firms are turning to flexible hours and other incentives to attract employees, though not higher wages.

Like Willis, private economists and analysts at recruiting and payroll companies also see a stressed but adjusting labor market.

A recent Goldman Sachs study concluded that wage growth should continue to slow even with the current low unemployment rate of 3.4%.

According to Manuel Abecasis, an economist at Goldman Sachs, once the pandemic-related changes are complete, companies will not have to continually increase incentives to workers above the new baseline.

Between lower inflation, a slow but steady drop in job openings, and the completion of pandemic adjustments, wage growth should decline by the end of next year to an annual rate of 3.5%, considered more consistent with targets. inflation from the Federal Reserve.

The minutes of the Fed meeting held between January 31 and February 1 seemed to agree that there were “provisional indications” that hiring was shrinking and labor cost growth was slowing.

The 517,000 new jobs created in January raised concerns that the economy was still too hot.

But even that came with a slowdown in wage growth, and the increase was amplified by seasonal adjustments used to account for expected swings in hiring over the holidays.

It appears that companies hired more staff than usual during the holidays, which could reduce seasonal hiring in the future and bring the labor market closer to equilibrium.

Source: Reuters