Better Prospects for Future Income?

November 13, 2014

One of the most notable economic metrics that has not yet recovered from the recent recession is income and wage growth. This is not surprising: given the high level of unemployment, employers have been able to successfully hire without having to pay a material premium in wages. This trend has been supported by the level of wage growth, which has averaged close to 2%, significantly below its pre-recession average of 3.5%.

However, as the unemployment rate has abated, this trend appears to be reversing itself, at least in terms of future wages expectations on behalf of workers. Our chart this week shows the growing level of workers who expect their incomes to actually increase in the coming years (blue line in the graph). Predictably, the number of workers who expect their incomes to decrease is dropping (red line). Collectively, these patterns suggest a growing confidence that wages will increase, which should translate into more disposable income for consumers. Given that the U.S. economy is one driven by consumption, higher wages should translate into a notable tailwind for economic growth.