- A new Fed report signals the pay boom seen through the pandemic is differing from city to city.
- Businesses in coastal giants and Midwest cities told Fed banks they expect above-average wage growth to continue.
- Yet Philadelphia, Boston, Cleveland, and Atlanta showed signs the pay rally is cooling.
The labor shortage continues to push wages higher across the country, but some cities are set to enjoy the pay hikes longer than others.
The good news: working Americans are still seeing wages climb at a historic pace. Average hourly earnings rose by $0.13, or 0.4%, to $31.73 in March, accelerating from the mild gain seen through February and continuing the trend of above-average wage growth. With job openings and quits both near record highs through February, businesses continued to boost pay in hopes of attracting and keeping workers.
Yet the wage rally is starting to diverge. New Beige Book reports from the 12 regional Federal Reserve banks published Wednesday reveal just how labor markets differ across the US. While employers in some cities and the regions around them are preparing for another round of larger-than-usual raises, others are starting to rein in their pay-hike plans.
The pay-bump party is charging forward in New York, San Francisco, and Chicago
Workers in the largest US metropolitan areas are likely to enjoy bigger raises for a while longer.
Businesses surveyed by the New York Fed said they were still raising wages and "anticipated further increases in the months ahead," according to the Beige Book. Some noted that workers in high-demand jobs garnered "outsized" raises when changing jobs. Others said they hiked pay by 20% or more to bolster worker retention amid elevated quitting.
Employees in the San Francisco Bay Area also fared well through late March and early April. Businesses in contact with the San Francisco Fed said they were penciling in average raises of 5% for fiscal 2022. Health care and financial services firms reported plans for even larger raises in the months ahead.
Chicago businesses seemed to struggle more with finding available workers to begin with. Firms told the regional Fed bank they "rapidly" raised wages and benefits "both to attract new workers and retain existing talent." Some added that, while they had raised pay, they were still unable to fill openings due to a lack of job applicants.
Workers in the Midwest are also set to receive larger pay bumps for the time being. Employees in the St. Louis metro area increasingly pointed to elevated inflation — the fastest since 1981 — when bargaining for higher wages, according to the report. Pay growth held strong in Minneapolis, and raise sizes were growing in sectors where employers were in stiff competition over a small pool of available workers. The Kansas City Fed witnessed "robust and broad-based" pay gains in recent weeks and highlighted wage growth was relatively faster at lower-paying employers.
Philadelphia, Boston, and Cleveland are showing the first signs of a cooldown
Other regions, while still showing healthy wage growth, are also signaling that the rally is cooling its jets.
Boston differed from some of its east-coast peers. Though a majority of businesses reported "moderate to robust" pay hikes, some manufacturers said wages were stable in recent months. The remarks come as lingering supply-chain strains hobble the industry and the Russia-Ukraine conflict drives up commodity prices. It's possible that, amid soaring material costs, manufacturers in the area are easing their plans for large pay increases.
Cleveland similarly set itself apart from the neighboring Chicago area, with more firms saying they aren't planning to keep the pay rally alive. The share of contacts reporting large increases fell to less than 60% in the latest Beige Book from 70% at the end of 2021, the central bank said. Some firms said their recent pay hikes didn't lead to improved hiring or retention, and that they couldn't afford to lift wages further.
The path for faster wage growth was mixed in the Atlanta region as well. Various businesses in the area told the Fed they plan to be more targeted with raises instead of lifting pay across the board. Some also noted that, while they planned to hold wage increases steady through 2022, persistently higher inflation could force them to rethink that strategy.
Some Philadelphia-area employees are starting to see wage growth cool. The pace of pay gains "appears to have risen moderately" and "somewhat less" than in the prior period, the Philadelphia Fed said. While no businesses reported lowering pay, many firms said the pay rally slowed.
Monthly wage gains seen through 2022 have already exceeded the historical norm, and extraordinary tightness in the labor market is likely to keep the above-trend growth around in the near term. Yet as the country approaches a full jobs recovery, some cities and regions are hinting that pandemic-era raises will soon be a thing of the past.