Companies are planning for steeper wage increases next year than at any point since the 2007-2009 recession, according to a new report, amid a tight labor market and the highest inflation in three decades.
A survey by the Conference Board set for release Wednesday finds that companies are setting aside an average 3.9% of total payroll for wage increases next year, the most since 2008.
The survey also shows that companies are planning on raising salary ranges, which would result in higher minimum, median and maximum salaries. That suggests pay raises could be broad-based and affect workers across a company’s pay scale.
The results are a sign the recent acceleration in private-sector wages is likely to carry over into 2022.
Such a sustained rise in wages could push consumer prices higher, as companies raise prices to compensate for pay increases. The dynamic of higher wages and prices could further stoke inflation and increase the chance of a spiral of rising wages and prices feeding on each other that could be difficult to stop.
Roughly 39% of respondents to the survey said inflation factored into their decision to set aside funds for wage increases next year.
“The impacts of wages on inflation and of inflation on wages are now stronger than they have been in recent decades,” said Gad Levanon, chief economist at the Conference Board.
In earnings calls, some companies have said that they plan to raise wages next year. Jonathan Ramsden, chief financial officer of Big Lots Inc., a retailer, told analysts Friday the company would face higher costs next year due to “inflationary wage and other pressures.”
The clothing retailer the Gap Inc. has also included higher pay in its outlook, executives told analysts last month.
And Mark Kalvoda, chief financial officer at Titan Machinery Inc., which sells farm and construction equipment, told analysts in a Nov. 23 earnings call that it was also planning for higher compensation.
“We are realizing inflationary cost pressures in areas like fuel, wages and employee benefits and expect those pressures to intensify in future quarters,” he said.
The Conference Board, a think tank, surveyed 229 U.S. companies from a variety of sectors in November. More than half the firms had more than 10,000 employees. The Conference Board began conducting the survey annually in 1998.
How long the recent high levels of inflation will last is one of the driving questions of economic policy makers.
Federal Reserve officials in recent weeks have acknowledged new uncertainty over how prices will behave in the coming year. That is a shift from their previous position that this year’s accelerating inflation was likely to be temporary as the economy adjusted to supply-chain disruptions and a temporary labor shortage brought about by the Covid-19 pandemic.
“It now appears that factors pushing inflation upward will linger well into next year,” Fed Chairman Jerome Powell said in congressional testimony last week.
Now officials are laying the groundwork to act more forcefully to curb inflation next year if necessary. Mr. Powell suggested the Fed could hasten the pace with which it is pulling back support from the economy when it meets next week.
Officials are likely to announce plans to stop their bond-buying program by March instead of June, as they had previously anticipated. That could set the stage for raising interest rates beginning next spring.
The Fed cut rates to near zero and launched an asset purchasing program in 2020 to help the U.S. economy weather the pandemic. Removing such accommodation would likely slow the pace of growth and hold down inflation.
On Friday, the Labor Department reported that private-sector hourly wages rose 4.8% in November from the year before, on par with October. Wages have risen by more than 4% year-over-year for five consecutive months. By contrast, wage increases averaged 3.3% in the year before the pandemic arrived in the U.S. in February 2020.
A separate measure of compensation that includes both wages and benefits rose a seasonally adjusted 1.3% in the third quarter from the previous quarter, the Labor Department said in October, the fastest pace on record.
Source: WSJ
