The latest reading of the labor market on Friday comes at a time of more worker upheaval than the country has seen in decades.
Unions representing employees from Deere & Co. to Kellogg Co. aren’t backing down in their efforts to secure better working terms and conditions. That follows decisions by other high-profile companies such as McDonald’s Corp. and Chipotle Mexican Grill Inc. to raise pay in a battle to attract and retain workers that’s pushed up wages the most on record.
Many economists expect that wage growth will slow in the coming months as more Americans return to the labor force and competition for workers eases. A report from the Labor Department out Friday is forecast to show the U.S. added 450,000 workers to payrolls in October, which would be the most since July.
The risk of persistently higher pay is that more businesses will raise prices further in order to protect margins as the costs of labor, materials and transportation climb. That could culminate in a vicious cycle as inflation’s erosion of consumer purchasing power encourages greater wage demands.
That’s not a scenario Federal Reserve Chair Jerome Powell sees playing out. At the conclusion of the central bank’s policy meeting Wednesday, Powell said that if wages were to rise materially above inflation and productivity growth, “that could put downward pressure on margins and cause employers to raise prices as a result. We don’t have evidence of that yet.”
A measure of employment costs rose in the third quarter at the fastest rate on record, while wages and salaries have climbed for seven consecutive months. Meanwhile, the Fed’s preferred inflation gauge is at its highest level in 30 years on an annual basis, running well above its 2% target and adding to speculation that the central bank will raise rates sooner than expected.
