The U.S. economy may be steadily adding jobs, but so far in 2014, there are few signs that the labor market improvement is translating into income gains for workers.
The Bureau of Labor Statistics reported Friday that average hourly earnings for workers rose 2 percent annually through July. The unemployment rate has fallen by almost a quarter since 2013, but wage gains have yet to show a corresponding improvement.
Nor have benefits risen to offset the weak wage gains. The BLS reported Thursday that the Employment Cost Index, a broader gauge of employee compensation that includes benefits, rose at a 2 percent annual rate through the second quarter — a weak mark despite a sharp upturn in the quarter.
With consumer price increases running at roughly 2 percent, that slow compensation means that workers' real income gains have been just about zero over the past year.
Federal Reserve Chairwoman Janet Yellen has identified slow wage growth as one of the crucial indications that labor markets are not tight. She views low wage inflation as a sign that there is still "slack" in the economy that can be addressed with monetary policy without stoking too-high inflation.
Despite the continued job gains, the Fed will likely interpret this week's income figures as a sign not to withdraw stimulus.
The inflation figures released Friday will only strengthen that conclusion. The Bureau of Economic Analysis reported that inflation slowed in June, as measured by the Personal Consumption Expenditures Index, from 1.7 percent to 1.6 percent annually. Stripping out the prices of food and energy, inflation held steady at 1.5 percent.
The Fed views the PCE index as the most accurate gauge of inflation, but inflation also slowed in the latest month in the Consumer Price Index.