A recent report indicates that Americans are experiencing the slowest wage growth in two years. The average hourly wage in the US was $35 in June, showing a modest increase of 10 cents from the previous month. However, the annual wage growth rate has declined to 3.9% in June, down from 4.1% in May and significantly lower than the 4.7% recorded in June 2023.
This deceleration in wage growth could potentially lead to the Federal Reserve implementing interest rate cuts, provided it results in a slowdown in inflation. While strong wage growth can drive up prices, the Federal Reserve primarily monitors inflation indicators to gauge price stability. The recent slowdown in productivity growth has also contributed to the moderation in wage increases.
The current job market conditions, characterized by a decrease in job opportunities, have reduced the incentive for employers to offer higher wages to attract skilled workers. Following the economic recovery from the Covid-19 pandemic, labor shortages were a common concern among employers, prompting some to raise wages to retain talent.
However, the situation has evolved, and the job market is now operating at a slower pace. Despite this, wage growth remains higher than the levels observed between 2007 and 2020, a period marked by significant disruptions due to the pandemic.
