I’m adding some thoughts, and maybe some predictions for each question.
7) Wage Growth: Wage growth was solid in 2023, up 4.0% year-over-year as of November, but down from 4.8% YoY in 2022. How much will wages increase in 2024?
The most followed wage indicator is the “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka “Establishment”) monthly employment report.
Click on graph for larger image.
The graph shows the nominal year-over-year change in “Average Hourly Earnings” for all private employees. There was a huge increase at the beginning of the pandemic as lower paid employees were let go, and then the pandemic related spike reversed a year later.
Real wage growth has trended down after peaking at 5.6% YoY in March 2022 and was at 4.1% YoY in December 2023. Although wage growth was above expectations in December, the trend is clearly down.
The second graph is from the Atlanta Fed Wage Tracker. This measure is the year-over-year change in nominal wages for individuals.
By following wage changes for individuals, this removes the demographic composition effects (older workers who are retiring tend to be higher paid, and younger workers just entering the workforce tend to be lower paid).
The Atlanta Fed Wage tracker showed nominal wage growth increased sharply in 2021 and for most of 2022. In November 2023, the smoothed 3-month average wage growth was at 5.2% year-over-year, down from a peak of 6.7% in July 2022.
Clearly wage growth is slowing and I expect to see some further decreases in both the Average hourly earnings from the CES, and in the Atlanta Fed Wage Tracker. My sense is nominal wages will increase close to 3.5% YoY in 2024 according to the CES.
Here are the Ten Economic Questions for 2024 and a few predictions:
• Question #8 for 2024: How much will Residential investment change in 2024? How about housing starts and new home sales in 2024?
• Question #9 for 2024: What will happen with house prices in 2024?
• Question #10 for 2024: Will inventory increase further in 2024?