”Survey says” looks at various rankings and scorecards judging geographic locations while noting these grades are best seen as a mix of artful interpretation and data.
Buzz: Southern California pay raises have shrunk, falling faster than a more modest national decline.
Source: My trusty spreadsheet looked at first-quarter results from the Employment Cost Index, a pay benchmark that’s carefully watched by the inflation-phobic Federal Reserve. The index tracks private-industry pay in 15 big U.S. job markets – including the region comprising Los Angeles, Orange, Riverside, San Bernardino and Ventura counties.
Topline
Let’s be honest: The Fed’s inflation fight includes trimming raises.
So far, it’s working in Southern California where wages rose at a 4.9% annual rate in 2023’s first three months. That’s down from 5.9% in 2022’s final quarter and down from 5.6% a year earlier. It’s also the smallest rise since the first quarter of 2021.
Historically speaking, though, these raises remain ample salary bumps. In pre-pandemic 2015-19, local wages grew at a 2.6% annual pace.
Nationwide, wages started the year rising at a 4.8% pace, down from 5.1% three months ago but the same 4.8% a year ago. In 2015-19, U.S. wages grew at a 3.4% annual pace.
Meanwhile, look at the Fed’s big worry.
Inflation, as measured by the Consumer Price Index, averaged 5.8% in the first quarter. Yes, that’s below 7.1% three months earlier and 8% at the first of 2022. But remember that the CPI rose at a 1.5% annual rate in 2015-19.
Details
One of the many economic oddities of the pandemic era has been a shortage of workers. That’s made attracting and retaining staff a managerial headache.
As a result, wages have risen sharply and that expense has become a key factor in stubbornly high inflation, especially within labor-intensive service industries.
But the Fed’s inflation battle is tricky because wage movement is a very regional pattern. Consider that of 15 job markets tracked by the Employment Cost Index, nine had shrinking raises over three months and eight had smaller increases over the past year.
Note that thinner pay raises don’t appear to be a California thing. In the Bay Area, first-quarter wages were up 4.7% vs. 4.5% three months ago and 3.8% a year ago.
Bottom line
Yes, it sounds awkward, but the good fortune of workers (substantial pay raises) is part of the inflation problem.
Unfortunately, the only way the Fed can tame inflation is by using high interest rates to cool demand for products and services. Part of the Fed’s bet is that such an economic chill will nudge bosses to minimize staffing and be less generous with pay.
Cal State Fullerton economists believe the Fed’s action will create a “garden-variety” recession and crimp the Southern California job market to no growth during the next two years.
But as Employment Cost Index shows, dramatically slowing wage inflation won’t be easy. Why? Look at what CSUF economists wrote in their forecast:
“In the late stages of a normal business cycle, as inflation, wages, and jobs stay firm, economic activity melts away. This puts pressure on productivity. In fact, productivity behaves quite predictably during the entire business cycle: It rises in recessions as firms cut employment and institute cost-cutting measures and it falls in the late stages of an expansion as firms hold on to their labor force. Companies are even more determined to hoard labor after the traumatic labor shortages experienced post-pandemic.”
Elsewhere
Pay hikes in the other 13 U.S. markets, ranked by one-year wage gains in the first quarter …
Philadelphia: 6.5% – up from 4.4% three months ago and up from 4.7% a year ago.
Miami: 6% – down from 6.8% three months ago but up from 4.6% a year ago.
Seattle: 5.9% – down from 6.2% three months ago but up from 4.5% a year ago.
Washington, D.C.: 5.7% – up from 4.3% three months ago and up from 3.5% a year ago.
Atlanta: 5.6% – up from 4.8% three months ago and up from 3.4% a year ago.
Phoenix: 5.2% – up from 5.0% three months ago but down from 6.4% a year ago.
Dallas: 5.1% – down from 5.5% three months ago and down from 5.4% a year ago.
New York: 4.3% – down from 5.0% three months ago but up from 4.2% a year ago.
Minnesota: 4.3% – down from 5.3% three months ago and down from 5% a year ago.
Boston: 4% – down from 5.8% three months ago and down from 6.1% a year ago.
Detroit: 3.8% – down from 4.1% three months ago and down from 5.1% a year ago.
Chicago: 3.5% – down from 4.4% three months ago and down from 3.8% a year ago.
Houston: 3.4% – up from 3.3% three months ago but down from 5.2% a year ago.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
