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U. S. workers see fastest wage growth in a decade, but inflation takes a toll

Contractors work on townhouses under construction at the PulteGroup Inc. Metro housing development in Milpitas, California, U.S., on Thursday, Oct. 25, 2018. (David Paul Morris/Bloomberg)

U.S. workers are seeing the largest nominal wage increase in a decade, the Labor Department reported Wednesday, as companies compete harder for employees than they did in recent years.

Wages rose 2.9 percent from September 2017 to September 2018, according to the Labor Department’s Employment Cost Index for civilian workers, a widely watched measure of pay that does not take inflation into account.

That is the biggest increase — not adjusted for inflation — since the year that ended in September 2008.

Prices have risen significantly in the past year, especially for gas and rent. Adjusted for inflation, workers’ wages grew 0.6 percent over the year, making the increase the largest since 2016, according to the Labor Department.

Sluggish pay growth has been one of the biggest problems in this recovery, but employers are finally having to hike wages at a more normal level typically seen during good economic times. Unemployment is at a 49-year low and there are more job openings than unemployed Americans, which forces companies to fight for available workers.

“Wages are grinding higher as the labor market continues to tighten,” said Justin Weidner, an economist at Deutsche Bank. “Wage growth is likely to be over 3 percent again soon.”

On Friday, the Labor Department will release the other most-watched wage metric: average hourly earnings. Many economists expect that will be above 3 percent for the first time since April 2009.

“How hot is the labor market? Hot enough for employers to pony up some more cash to get workers to come work for them,” wrote Chris Rupkey, chief financial economist at MUFG Union Bank, in a note to clients.

The jobs boom has finally reached blue-collar workers. Will it last?

As Americans head to the polls for the midterm elections next week, consumer confidence is at the highest level since 2000, largely because people think job opportunities are plentiful, the Conference Board’s Consumer Confidence Survey showed Tuesday.

In a sign that companies are struggling to find enough workers, just 23 percent of companies reported they are not have any trouble hiring, down from 42 percent a year ago, according to a survey by the National Association for Business Economics released this week.

More than half of small businesses say they can find few, if any, qualified candidates for their open positions, according to the latest National Federation of Independent Business survey. Small business owners say they plan to increase employee compensation in the coming months at the fastest rate since the NFIB survey began in the 1980s.

U.S. economy grew at an annual rate of 3.5 percent in third quarter

Wage growth has been steadily rising in the past year, according to the Employment Cost Index. From September 2016 to September 2017, wages and salaries rose 2.5 percent, the Labor Department said.

Some have argued that companies were holding off on increasing wages because they were having to put more money toward benefits, but the Employment Cost Index also tracks benefits costs, and those have not risen as much as wages. Benefits grew 2.6 percent in the year ending September 2018 vs. 2.4 percent in the prior year.

President Trump has taken credit for the strong economy and frequently likes to tout low unemployment and solid job growth when he is on the campaign trail ahead of the midterm elections. Economists say his policies deserve some credit for triggering faster growth, but unemployment has been falling steadily for eight years and wages have been inching higher.

“It’s not about the tax cuts. This is about the gradual tightening in the labor market finally forcing employers to pay more,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “There’s no question the trend is rising, but we are not exploding. We are still in a phase of gradual, incremental creep.”

Trump campaigned heavily on bringing back blue-collar jobs. While manufacturing and other blue-collar professions are seeing some of the fastest job growth since the mid-1980s, pay is not rising. Most of the wage growth in the Employment Cost Index is coming from service-sector jobs. Pay in the “goods-producing sector” has actually slowed in the past year, notes Michael Pearce, senior U.S. economist at Capital Economics.

For Azoria Morales, a single mother of two boys, ages 8 and 10, who works as a housekeeper in St. Louis earning $8.50 an hour, wage increases can’t come soon enough. She recently had to replace the alternator on her car, an unexpected expense that meant she had to tell her boys she wouldn’t be able to pay for them to play in the youth football league this season.

“Putting food on the table is a constant struggle. I was going to school to be a dental assistant, but I was in a car crash, resulting in nerve damage to my hand,” said Morales, who is 28. “I do the best I can with what I have. Costs keep going up, but my wages haven’t kept pace.”

Update: This story was updated to include more information about inflation-adjusted wages.

Correction: An earlier version of this story incorrectly identified Michael Pearce as Michael Pence.