Real Wages Seen Rising in ’05 After First Decline in a Decade
A slowdown in business last year left San Francisco legal assistant Paul Rossman with a 3% pay raise that did little more than keep up with inflation. “I was backsliding,” he said.
This year, he’s confident his raise will be at least double 2004’s. “I’m optimistic about my own job, San Francisco has a vibrant economy, and my office is in good shape now after a slow year,” Rossman, 44, said. A better raise means he’ll be able to eat out more, go to the movies more and take better vacations.
He may have company, too.
Wages, when adjusted for price increases, are likely to bounce back this year after falling in 2004 for the first time in a decade, say economists such as Richard DeKaser of National City Corp. in Cleveland and Raymond W. Stone of Stone & McCarthy Research Associates in Princeton, N.J.
An increase in real wages shifts more of the benefits of the economic expansion to consumers, who account for more than two-thirds of gross domestic product. Growth in real wages “will increase workers’ disposable income, boost confidence and help keep consumer spending strong,” DeKaser said. He expects the U.S. economy will grow 4% in 2005, or 0.4 percentage point faster than the median forecast of 62 economists in a Bloomberg News survey.
The economists’ predictions about wages are based on two expectations: First, that companies will step up hiring in 2005, removing slack in the labor market and creating pressure to pay workers more; and second, that falling oil prices and slowing increases in employee health costs will ease inflation. The combination would leave workers in better financial shape and would support their spending habits.
U.S. employers created more than 2.1 million net jobs last year, and an economist survey by Kansas City, Mo.-based publication Blue Chip Economic Indicators predicts an additional 2.22 million in 2005.
“The tension in the labor market will be stronger in 2005, so wages should be a little firmer and job growth will be a little bit better,” economist Stone said.
Those trends are evident in corporate hiring plans for this year. For example, Calabasas-based Countrywide Financial Corp., the biggest U.S. mortgage lender, said Dec. 14 that it planned to add 7,500 jobs in Texas over six years while seeking to expand market share.
Smaller firms also are ramping up expectations for this year, according to the Washington-based National Federation of Independent Business. A survey by the group published Dec. 14 showed 19% of 574 respondents planning to add jobs in 2005, up from 15% in the previous month.
