Tucked in a raft of economic data that poured out Tuesday, the Bureau of Labor Statistics reported real average weekly earnings rose 0.6 percent in May, despite the largest increase in the consumer price index in 17 months.
Wages, driven by tight labor markets, rose 2.7 percent faster than the rate of inflation for the 12 months ended in May, the government said. That’s the fastest rise in inflation-adjusted pay in more than two decades.
So robust is hiring that in Illinois, the unemployment rate dropped to 3.9 percent in May from 4.2 percent in April–the first time since 1974 that the state’s jobless rate has fallen below 4.0 percent, according to the Illinois Department of Employment Security.
Payrolls in the state rose to 5.89 million, up nearly 1 percent over the previous May, with all sectors of the economy reporting more employees, including manufacturing.
“We are getting to World War II levels of tightness in some areas,” said James Annable, chief economist for First Chicago NBD Corp.
That tightness helped push the average U.S. hourly wage paid last month to $12.70 from $12.18 a year earlier. Average weekly earnings rose to $441.73 from $423.69 a year earlier.
Tight labor markets and rising wages are taking their toll on the temporary staffing market. The stock of Milwaukee-based Manpower Inc. plummeted 27 percent Tuesday after the company said it will earn one-third less in the second quarter than Wall Street has expected.
Because labor is scarce, companies like Manpower are having to spend more on wages, job placement, training and recruitment.
While it’s headache for the temporary help market, it’s a boon for most workers–and Washington’s politicians.
“Real wage increases are the most popular things in Washington, bar none,” Annable said. “Nothing makes people happier, and makes people happier with incumbents.”
For Annable and many of the nation’s economists, rising wages serve as a powerful indicator that Federal Reserve Board Chairman Alan Greenspan and the rest of the central bank’s Federal Open Market Committee won’t be increasing interest rates when they meet June 30.
Annable said he could almost hear Greenspan saying to himself: “This country and this town have been starved for real wage growth for a generation, and I’m going to get in the way of it?
“The only imbalance in the economy is the labor market and that will eventually generate inflation, but you have to get through a lot of good times before then,” Annable said.
In a slew of reports, economic data show the local and national economies as healthy as ever, never mind hand-wringing over recession in Japan, the collapse of Asia’s tiger economies or slumping corporate profits.
While the consumer price index rose 0.3 percent in May, the so-called core rate, which excludes highly volatile food and energy prices, rose 0.2 percent.
Though mild, the 0.3 percent increase was the largest in 17 months. For the first four months of the year and for all of 1997, it ranged between no increase and a 0.2 percent increase.
For the first five months of the year, inflation ran at a 1.5 percent annual rate. The core rate of inflation advanced at a 2.7 percent annual rate, compared with a 2.2 percent increase for all of last year.
Most of the gain in the core rate can be traced to price increases by tobacco companies preparing to settle huge liability lawsuits. Cigarette prices rose 2.6 percent in May and are up 7.7 percent from the end of 1997.
While the CPI rose only 1.5 percent nationally in the 12 months ended in May, consumer prices in the Chicago area rose 2.8 percent during the same period, according to Peter Hebein, Bureau of Labor Statistics regional commissioner.
Chicago-area consumer prices also rose in May. A 0.5 percent cost of living increase for the month was driven by a 4.3 percent increase in energy costs, he said. Stripping out energy costs, the monthly increase would have been only 0.2 percent.
Separately, the Commerce Department said housing construction, while sliding for the third consecutive month, remained strong. Builders started work in May at a seasonally adjusted annual rate of 1.53 million units, down 0.7 percent from April. The starts rate had hit a nine-year high of 1.62 million units in February.
And the Federal Reserve said production at the nation’s factories, mines and utilities rose 0.5 percent, the largest increase in six months. It was driven by a 2.8 percent surge at utilities, particularly for electricity generation, and a 1.2 percent jump at mines, reflecting a large gain in coal production.
American industry was operating at 82.2 percent of capacity, up slightly from 82.1 percent in April and the same as in March and February.
