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Smaller Annual Wage Gains Likely, BNA Index Predicts

NEWS RELEASE

Contacts:
Karen James Cody,
BNA - Press Contact
Kathryn Kobe - (202) 466-7720
Joel Popkin - (202) 466-9063

Arlington, Va. (Oct. 15, 2009) — The rate of annual wage growth in the private sector is likely to slow in the coming months, according to the final third quarter Wage Trend Indicator™ (WTI) released today by BNA, a leading publisher of specialized news and information.

The index declined for the sixth consecutive quarter to 98.00 (second quarter 1976 = 100) from 98.55 in the second quarter.

“We’re seeing an awful lot of weak indicators on the employment side, and it remains to be seen how soon the economic recovery is going to feed through to jobs,” said Kathryn Kobe, an economic consultant who maintains and helped develop BNA’s WTI database. “It’s a little hard for most workers to demand huge salary increases when there are so many unemployed people lined up waiting for jobs,” Kobe said.

Kobe predicted that the rate of year-over-year wage growth will decline to around 1.0 percent or possibly less, easily beating the record low of 1.6 percent posted in the second quarter, according to the Department of Labor’s employment cost index (ECI).

“The latest WTI suggests that labor markets are as weak as they were at their trough following the 1981-1982 recession, and the index may not have reached its bottom for this downturn yet,” economist Joel Popkin, who developed the index for BNA, said. “Until the unemployment rate turns around, we certainly can’t forecast any acceleration in wage gains, and in fact, they could go lower,” Popkin said.

Over its history, the forward-looking WTI has predicted a turning point in wage trends six to nine months before the trends are apparent in the ECI. A sustained decline in the WTI is predictive of a deceleration in the rate of private sector wage increases, while a sustained increase forecasts greater pressure to raise wages.

Contributions of Components

Reflecting the weak labor market conditions, five of the WTI’s seven components made negative contributions to the final third quarter reading, while one component was positive, and one had a neutral impact. The negative factors were the unemployment rate, job losers as a share of the labor force, and average hourly earnings of production and nonsupervisory workers, all reported by DOL; the share of employers planning to hire production and service workers in the coming months, tracked by BNA’s quarterly Employment Outlook Survey; and industrial production, measured by the Federal Reserve Board. The only positive factor was the proportion of employers reporting difficulty in filling professional and technical jobs, from BNA’s employment survey, while forecasters’ expectations for the rate of inflation, compiled by the Federal Reserve Bank of Philadelphia, was the neutral component.

BNA's Wage Trend Indicator™ is designed to serve as a yardstick for employers, analysts, and policymakers to identify turning points in private sector wage patterns. It also provides timely information for business and human resource analysts and executives as they plan for year-to-year changes in compensation costs.

The WTI is released in 12 monthly reports per year showing the preliminary, revised, and final readings for each quarter, based on newly emerging economic data.

More information on the Wage Trend Indicator is available on BNA's WTI home page at http://www.wagetrendindicator.com.

The next report of the Wage Trend Indicator™ will be released on Wednesday, Nov. 18, 2009 (preliminary fourth quarter)

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BNA is a leading publisher of print and electronic news, analysis, and reference products, providing intensive coverage of legal and regulatory developments for professionals in business and government. BNA produces more than 200 news and information services, including the highly respected Daily Labor Report and Daily Report for Executives.

Dr. Joel Popkin, who developed the WTI for BNA, is acknowledged as one of the country's foremost authorities on the measurement and analysis of wages and prices. Formerly an official with the Bureau of Labor Statistics, Dr. Popkin has been an analyst observing and predicting the U.S. economic outlook for 40 years. Kathryn Kobe, who worked with Popkin in designing the indicator for BNA, is director of price, wage, and productivity analysis at Economic Consulting Services LLC.

To obtain Wage Trend Indicator™ reports by e-mail on a regular basis, contact Jerry Walsh, BNA PLUS, 800-372-1033.