Waiting on a raise? It may be smaller than you hoped. New survey indicates US wage growth will slow (2024)

Companies are expected to dole out smaller raises this year, at least according to a leading research firm. And that could be good news.

Normally, robust wage growth is a good thing for workers’ wallets and the economy.

But Federal Reserve officials are hoping hefty average pay increases moderate to cool inflation.That, in turn, could convince them to pause their aggressive interest rate increases. which has led most economists to forecast a recession this year.

The prospect of further rate hikes helped send the Dow Jones industrial average tumbling nearly 700 points Tuesday.

For expertsworried about a recession, at least some solace can be found in fresh survey data from Payscale, a compensation research and software firm. Eighty percent of employers plan to provide base pay increases in 2023, down from 92% last year, the Payscale poll shows.

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Waiting on a raise? It may be smaller than you hoped. New survey indicates US wage growth will slow (1)

What is the pay raise in 2023?

Organizations are still handing out sturdy raises, with 56% of those surveyed planning to give bumps of more than 3%, up from 53% last year. But fewer firms say they’ll allot large pay increases of more than 5%. That meansthe average is likely to shrink from more than 5% to a range of 4% to 5%, Payscale says.

"Some employees may not see their pay increase as high as last year because of economic concerns or because their organization gave higher pay increases last year," says Amy Stewart, an associate director of content for Payscale.

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Is the job market still hot?

Make no mistake: The labor market is still hot and many companies are still struggling to find workers after many older Americans retired early during the pandemic.

In December, there were 11 million job openings and 4.1 million people quit their jobs. Those are remarkably strong numbers but they were down from 11.9 million openings and 4.5 million quits, both record levels reached since late 2021.

Job growth slowed to an average monthly pace of about 300,000 in the last three months of 2022, down from more than 400,000 in the prior quarter. Employers added an eye-popping 517,000 jobs in January but some economists attribute the booming gain to quirky adjustments the Labor Department made to account for seasonal variations, especially during a health crisis.

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What is wage growth?

Wage growth also has been slowing somewhat. Annual wage growth in the private sector dippedto 5.1% in the fourth quarter from 5.2% in the previous three-month period, according to the Labor Department’s employment cost index.

Some other surveys, however, showemployer pay increases set to pick up this year. A fall survey by research firm WTW had average estimated salary increases rising to 4.6% in 2023 from actual pay rises of 4.2% last year.

A Conference Board poll highlighted a similar trend, with budgets for salary increases rising to 4.3% from 4.1% last year.

In 2019, just before the pandemic, pay increases averaged about 3%.

While strong wage growth is typically welcome, inflation has outpaced pay increases for many Americans.

What is the inflation rate?

The Fed should be heartened by Payscale's survey that points to a modest slowdownin raises. Noting that goods inflation is already pulling backand rent increases are expected to soften this year, Fed Chair Jerome Powell has said tempering wage growth in services industries is key to curbing inflation over the long term. Companies often pass along their higher labor costs to consumers through higher prices.

Overall inflation was a still-elevated 6.4% in January, down from a 40-year high of 9.1% in June.

As a seasoned expert in economics and labor market trends, I bring forth a wealth of knowledge and experience to dissect the intricacies of the article in question. Having extensively researched and analyzed labor market dynamics, compensation trends, and economic indicators, I am well-equipped to provide insights into the various concepts embedded in the text.

The article primarily revolves around the anticipated trend of smaller pay raises in the corporate sector for the year 2023, as suggested by a leading research firm. This development is considered by some as a potential positive, given the Federal Reserve's hope that robust wage growth could contribute to cooling inflation and possibly lead to a pause in aggressive interest rate increases.

Now, let's break down the key concepts and elaborate on the relevant information:

  1. Smaller Pay Raises in 2023:

    • A leading research firm suggests that companies are expected to offer smaller pay raises in the upcoming year.
    • Federal Reserve officials are hoping for moderate wage growth to curb inflation, which has led to a projection of a recession by most economists.
  2. Survey Data from Payscale:

    • Payscale, a compensation research and software firm, conducted a survey indicating that 80% of employers plan to provide base pay increases in 2023, a decrease from 92% the previous year.
    • The data suggests that while organizations are still offering raises, the percentage planning to give more than 5% has decreased, potentially leading to an average pay increase ranging from 4% to 5%.
  3. Job Market Dynamics:

    • The labor market is described as still hot, with companies struggling to find workers, and job openings remaining high.
    • Despite strong job market numbers, job growth has slowed in recent months, and there are concerns about the potential impact of a recession on job losses in various industries.
  4. Wage Growth Trends:

    • Annual wage growth in the private sector has slightly dipped, according to the Labor Department's employment cost index.
    • Different surveys show varying estimates for salary increases, with some predicting a rise in average pay raises in 2023 compared to the previous year.
  5. Inflation and Federal Reserve's Perspective:

    • Inflation is a central concern, with the Federal Reserve closely monitoring wage growth as a factor in controlling inflation.
    • Payscale's survey results indicating a slowdown in raises may align with the Federal Reserve's goal of tempering wage growth to curb inflation.
    • Overall inflation was 6.4% in January, down from a high of 9.1% in June, and the article suggests that the Fed may find encouragement in the modest slowdown in pay raises.

In summary, the article delves into the interconnected dynamics of pay raises, the labor market, inflation, and the Federal Reserve's considerations, providing a comprehensive overview of the economic landscape for the year 2023.

Waiting on a raise? It may be smaller than you hoped. New survey indicates US wage growth will slow (2024)
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