Wage Growth (Finally) Outpaces Rent Growth
Some Affordability Concerns Alleviated
By Chuck Ehmann | Thursday, December 15, 2016
Average hourly earnings for private nonfarm employees (wages) grew by 2.5% in November from one year ago, after a 2.8% increase in October. That 2.8% annual
increase generated a lot of attention in the media, but pales in comparison to the 3.9% wage increase for October reported by economists at the Federal Reserve Bank of Atlanta. Why the discrepancy?
The following chart graphs annual wage growth as calculated and reported by both the Bureau of Labor Statistics (BLS) and Atlanta Fed. Obvious differences are visible between the two data series, especially in somewhat stronger periods of economic growth (pre-Great Recession and post-2013). The difference is attributable to data sources and methodology.
The BLS wage growth calculations come from its monthly Current Employment Statistics Survey (CES), which tracks approximately 146,000 businesses and government agencies, providing detailed industry data on employment, hours and earnings of workers on nonfarm payrolls. This “employer survey” provides the monthly job gain figures reported in the media each month.
The Atlanta Fed utilizes data from the BLS’ Current Population Survey (CPS), which interviews a sample of households each month and provides data on the labor force, employment, unemployment, persons not in the labor force, hours of work, earnings, and other demographic and labor force characteristics. This “household survey” provides the widely-reported monthly unemployment rate figure.
One key difference between the two surveys is that the household survey will pick up earners who are unconventionally employed or earn extra income from entrepreneurial activity (think Uber and Airbnb). This tends to explain a large part of the difference in wage growth in the 2007-2008 and post-2013 periods.
In addition, economists at the Atlanta Fed manipulate the survey data in a different way from the BLS. They use a “same-store” sample by matching individual respondents who responded in both the current month and 12 months earlier. This data set has a higher share of older, more educated workers in professional jobs than does the sample of all wage and salary earners. This sample of mainly continuously employed workers in higher-paying jobs can skew the results.
Another key metric in the chart is annual effective rent growth for the U.S. moving monthly. Apartment rent growth rebounded in 2010-2011 after experiencing strong losses during the recession, according to Axiometrics' apartment market research. The shattered single-family market was a large part of the reason for sharply increased apartment demand and resulting spike in rent growth. Growth normalized somewhat through 2013 before spiking again in 2015 and again normalizing.
In October, annual apartment effective rent growth was 2.6%, 40 bps above its long-term average of 2.2%. In the same month, BLS wage growth was 2.8% and Atlanta Fed wage growth was 3.9% as earnings finally outpaced rent growth, giving those concerned about affordability a reason to breathe.