The U.S. is running out of available workers and that means employees are getting paid more.
And what's left in terms of labor slack is being run down at a faster pace than economists anticipate, with July's non-farm payroll report showing employment growth of 255,000 for the month. This combination is a recipe for rising wages — and that's exactly what happened.
On a monthly basis, the growth in average hourly earnings came in higher than expected. On an annual basis, this metric has now eclipsed its post-recession peak.
Signs of upward pressure on wages are not confined to the non-farm payrolls report. The Atlanta Fed Wage Growth, which tracks the increase in remuneration among individuals using microdata (and as such, implicitly adjusts for changes in the composition of the labor force), shows the median worker saw pay rise 3.6 percent through June, the fastest clip since 2009.
After falling and flattening out around the second half of 2015 and at start of this year, the annual growth of the employment cost index (which tracks the changes in both pay and benefits received) ticked up to 2.6 percent halfway through 2016.
Unit labor costs, a ratio of hourly pay and output, rose 3 percent year-over-year as of the first quarter, with the four-quarter moving average just shy of its peak so far this cycle:
A pick-up in wage growth can also be seen while poring through corporate earnings reports and conference calls, especially in fast food and retail. Companies like Starbucks Corp., Wal-Mart Stores, Inc. and Chipotle Mexican Grill, Inc. are a few examples of where the rising minimum wage is set to have an impact.
The percentage of small businesses surveyed by the National Federation of Independent Business that say finding quality workers is their single biggest problem also accelerated at the end of the second quarter to a level just off its highest of this expansion. On Tuesday morning at 6:00 a.m. New York time, we'll get a new report from the NFIB to see if this trend is continuing.