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As Economy Improves, Wages Remain Stagnant


And let's turn to someone we at this program always enjoy getting emails from. It is David Wessel, director of the Hutchins Center at the Brookings Institution and a contributing correspondent to The Wall Street Journal. We're going to talk about tomorrow's jobs report from the Labor Department, the most closely watched monthly snapshot of the U.S. economy. Hi, David.

DAVID WESSEL: Good morning.

GREENE: So I guess we're going to get this feel for the economy and its health tomorrow. How is the economy doing right now?

WESSEL: Well, the U.S. economy is doing better finally. We've added 3.2 million jobs in the past year. Economists expect the Labor Department tomorrow will report that another quarter million jobs were ended in February. The official unemployment rate was last reported at 5.7 percent. That's quite a contrast to the 8 percent we saw two years ago.

Other measures of the job market are improving, too. The Fed does this regional economic conditions report and they found businesses pretty upbeat about prospects for this year - more people working, more paychecks, falling gasoline prices, more money to spend. A lot of people are eating out more often, the data show, others are paying down debt. So although the report may be tempered by the bad winter weather, it will be an important gauge of, just how much momentum has the economy been gaining?

GREENE: Which makes me want to ask you, and, I mean, I feel like a broken record because we ask you this all the time, there's been this talk of the Federal Reserve and when it might raise interest rates with this momentum that seems to be building. I mean, what is the Fed looking for tomorrow that might cause them to finally make that decision?

WESSEL: Well, we are really living through an extraordinary chapter in economic history. The Fed has been holding interest rates near zero for more than six years. And now it's sending a very loud signal, as you suggest, that it expects to raise rates in the not-too-distant future, although it has been very imprecise about what that means.

GREENE: Right.

WESSEL: Many in the markets are guessing June, more likely in September. But if you listen to the Fed, they say they're data dependent. And that means they'll be scrutinizing tomorrow's report very closely, both to see whether the improving job market is pulling some people off the sidelines, where they've been for many months, or whether more part-time workers have been able to get full-time jobs if they want them and especially whether the pace of wage increases is finally picking up.

GREENE: You say finally because wages have been a real area of concern even as the economy has been looking better. I mean, the economy's improving, employers are hiring. Why haven't wages been going up faster?

WESSEL: David, that's a very big question now and one that the Fed, along with many workers of course, is focused on. The review of regional economic conditions that the Fed does that I mentioned a moment ago - they call it the Beige Book - found scattered reports of wage increases particularly for people with computer or technical skills, but otherwise very little evidence of a pickup in wages.

Before adjusting for inflation, average hourly earnings are up only about 2.1 percent from a year ago. That's not very much. And so some Fed officials are arguing that they ought to hold off any rate increases until they see more evidence that the job market has tightened enough to force employers to pay more, so inflation gets a little closer to their targets. But other Fed officials are getting itchy. And they say when unemployment's so low, wages are bound to take off, and they want to raise rates before that really happens.

GREENE: And just in a few seconds, David, I mean, aside from wages, other areas of concern that sort of make this picture not as great as it might be?

WESSEL: Well, the main worry is the rest of the world. It's really in lousy shape. And so the combination of weak demand from overseas customers with the rising foreign exchange value of the U.S. dollar, which makes our exports more expensive, is beginning to hurt U.S. manufacturers and their exports. And so that's something to watch very closely because that could ruin what's otherwise a pretty promising story.

GREENE: All right, David. Thanks as always.

WESSEL: You're welcome.

GREENE: David Wessel is director of the Hutchins Center on Fiscal and Monetary Policy at Brookings and a contributing correspondent to The Wall Street Journal. We enjoy having you on the program often. You hear him often right here on MORNING EDITION from NPR News. Transcript provided by NPR, Copyright NPR.