By Sharon Nunn and Sarah Chaney
WASHINGTON -- Employers across the U.S. said wage growth picked up since the beginning of the year, according to a Federal Reserve report released Wednesday, signaling the tight labor market may be forcing employers to beef up paychecks to compete for workers.
In many of the Fed's 12 regional districts, wage growth picked up to a moderate pace, the Fed reported in its latest roundup of anecdotal information about regional economic conditions known as the beige book. The report was based on information collected through Feb. 26.
Employment grew at a moderate pace compared with recent months, a sign the economy may have more labor market slack to pick up. Still, companies across the country reported continued worker shortages, particularly in the construction, information technology and manufacturing sectors.
Businesses in almost all parts of the country saw employers raise wages and expand benefit offerings to attract workers. Manufacturing companies in the Boston district, for example, reported higher starting salaries and longer waits to fill open positions. A few bankers in the Cleveland district expect to raise minimum pay to $15 per hour within the next two years.
The Trump administration's recent tax reform is also encouraging firms to increase pay, with some districts reporting modest increases in compensation following the tax bill's passage. One large retailer in the Boston district said it planned to pass along half of its savings from the corporate tax cut to some workers by raising wages. In the Minneapolis district, federal tax reform led to a number of one-time bonuses.
A stronger-than-expected jobs report released in early February raised the specter of ramped up wage growth, and by extension, heightened inflation. This sent stocks tumbling in the market's worst bout of volatility in years. The beige book's reported wage growth mimics that February jobs report.
Meanwhile, the report also suggested ramped up price growth was occurring, with most districts noting moderate inflation after some previously described price growth as "modest." Overall economic activity expanded at a modest to moderate pace across the districts in January and February.
In recent weeks, Fed officials have said the economy's growth prospects have strengthened in the past few months, and the Fed's beige book report supports that case. The heightened prospects indicate the central bank is on track to keep gradually lifting short-term interest rates and perhaps even pick up the pace this year if inflation flares to a level the Fed considers unhealthy for the economy.
The price index for personal-consumption expenditures, the Federal Reserve's preferred inflation measure, advanced 1.7% from a year earlier in January. The annual gain was the same as recorded in December and November. The Fed has set an annual target of 2% inflation, but has struggled to hit it in recent years.
The unemployment rate in January remained parked at a 17-year low of 4.1%, and the U.S. in 2017 notched its strongest year of economic growth in three years. The Trump administration's recent tax overhaul could add further juice to an economy that's already showing strength.
"We've seen continuing strength in the labor market. We've seen some data that will, in my case, add some confidence to my view that inflation is moving up to target. We've also seen continued strength around the globe, and we've seen fiscal policy become more stimulative," Fed Chairman Jerome Powell told the House Financial Services Committee last week in an answer to a question about what could cause the Fed to raise rates more than three times this year.
Write to Sharon Nunn at [email protected] and Sarah Chaney at [email protected]