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The Bottom Line

Worker demands for more money on the job hit a record level, a New York Fed survey finds

Key Points
  • The lowest wage workers are willing to accept for a new job increased from $72,873 in July to $73,667 in November, the highest it's ever been in a study from the New York Fed.
  • Workers under the age of 45 are most responsible for the increase, the central bank's data found.
  • The labor market has remained hot even as fears of a recession mount, and Fed Chair Jerome Powell has cited it as a key source of persistent inflation the Fed is attempting to rein in.
Federal Reserve Board Chairman Jerome Powell looks on during a news conference following the announcement that the Federal Reserve raised interest rates by half a percentage point, at the Federal Reserve Building in Washington, U.S., December 14, 2022. 
Evelyn Hockstein | Reuters

Fewer workers are searching for jobs, and satisfaction among workers is up, but those are not the key takeaways from the latest New York Fed data on a labor market that continues to be too hot for the central bank's inflation-fighting comfort. Workers are expecting more money than ever on the job.

The lowest average wage Americans are willing to accept for a new job increased from $72,873 in July to $73,667 in November, the highest reading ever in the Federal Reserve Bank of New York's Center for Microeconomic SCE Labor Market Survey, released on Monday. The level surpassed the $73,283 record reached earlier this year in March, which it had more recently dipped below. The increase was most pronounced for respondents below age 45.

The average expected annual salary of job offers in the next four months also increased, from $60,310 in July to $61,187 in November, also a record for the survey, eclipsing a mark set in March 2021.

The New York Fed releases this data online every four months as part of its Survey of Consumer Expectations (SCE) and released its latest annual review of the data in August.

The data is no surprise. Even as the economy cools and risk of a recession grows amid slower rates of business investment and softening consumer demand, Fed Chair Jerome Powell delivered on a message during his FOMC presser last week that resonates in C-suites across the economy: the labor market remains too hot and wage growth too high.

Signals of raises above 4% again in 2023 have been coming in from compensation consultants and show why labor market strength is a bigger issue for the Fed than the consumer prices as reflected in recent CPI cooling.

Even in Silicon Valley, where layoffs have been concentrated, CFOs say that the labor market is still running hot and there will be no return to a 3% merit raise budget for 2023. Inflation is down, but employee expectations are still high for raises because they have lost purchasing power.

The continued strength in the labor market will will put pressure on companies to keep using price as a lever to make back some of the margin lost to labor costs. 

That's significant, as it raises the risk of the wage-price spiral that is one of the Fed's greatest fears in the inflation fight, a cycle in which wages rise in response to prices and prices rise in response to wages.

In some industries, recent gains made by union workers in annual pay, as high as 7% in some cases, will lead to additional pressure from white-collar workers for bigger raises, and while not nearly as high as the union deals, the expectation in a hot labor market is for raises to remain above 4% in these sectors, a challenge compounded by having operations centered in some metro areas where the overall labor market continues to be strong.

Some firms will opt to offer one-time bonuses, which has become more common over the past few years as a way to acknowledge the inflationary pinch being felt by workers. This approach to offering more pay doesn't tie them into salary increases which can't be easily reversed, and also does not factor into the wage inflation trend for long.

But for now Powell is stuck with a labor market that isn't relenting to Fed policy as quickly as hoped. That can change quickly, and in past downturns, a trickle of layoffs — concentrated in tech so far but spreading to other sectors — can turn into a flood more quickly than the Fed's reaction function, and that's a fear CFOs have cited in conversations with CNBC — one difference between hopes of a soft landing for the economy and reality of a hard landing that arrives sooner than the Fed can tweak policy.  

As inflation comes down, the Fed is looking at three areas: core goods inflation, ex-food and energy, which is coming down; housing inflation, which is coming down (rent growth is at least slowing), but will decline slowly; and the third, and arguably more important, core services inflation which remains stubbornly high and where the labor market is the key.

"We do see a very, very strong labor market, one where we haven't seen much softening, where job growth is very high, where wages are very high. So that part of it, which is the biggest part, is likely to take a substantial period to get down," Powell said of services inflation. 

That's the big question for the Fed — in Powell's own words.

"The big question is, when we — how much will you see from the largest, the 55 percent of the index, which is the nonhousing services sector. And, you know, that's where you need to see — we believe you need to see a better balancing of supply and demand in the labor market so that you have — it's not that we don't want wage increases. We want strong wage increases. We just want them to be at a level that's consistent with 2 percent inflation. Right now that — if you put into — if you factor in productivity estimates, standard productivity estimates, wages are running, you know, well above what would be consistent with 2 percent inflation," he said. 

Fed Chair Powell needs to bring wages lower, says Jim Cramer
VIDEO5:4105:41
Fed Chair Powell needs to bring wages lower, says Jim Cramer