the economy

Wage Growth Is Improving. Does President Trump Care?

Photo: Alex Edelman/AFP/Getty Images

There was good news for workers this week: According to data from the Labor Department, wages and salaries grew at a 3.1 percent pace over the last year, the fastest in over a decade.

President Trump likes to complain he doesn’t get enough credit for the strong economy, and usually when there’s good economic news, he’s quick to tout it on Twitter. He even tweeted this morning to brag that the market rose 400 points yesterday. So where’s his tweet bragging about the good news on wages, which matters more to the personal finances of most Americans than one day’s move in the stock market?

Maybe the issue is that higher wages have a couple of negative side effects, undermining other economic indicators the president cares about.

First, higher wages cost companies money. If you own a company, you probably feel okay about upward wage pressures if they’re part of an overall strong economy that’s letting you grow your business and make profits. But the best thing for company owners is revenue growth without similarly strong wage growth, and in recent years, it’s often looked like they can have both of those at the same time.

If economic strength was already priced into stocks, and it’s now becoming clear that economic strength is going to have to come with a (belated) uptick in wages, that will tend to mean reduced expectations of future corporate profits and lower stock prices.

It’s become a cliché to say “the stock market is not the economy.” Sometimes, people lean too much into this idea: The stock market is certainly correlated with the economy, and in general, ordinary workers are doing better at times when stock prices are rising than when they are falling. But the wages-profits trade-off is a real example where the stock market diverges from the economy: If a larger fraction of economic output goes into wages instead of profits, that’s good for most people in the economy, and bad for stock prices. And we know the president cares a lot about stock prices.

Yet, the stock market was up again today. It’s clear investors weren’t spooked by the wage numbers — maybe because they’re convinced the rising tide will lift all boats, or maybe just because the pay increases were in line with what economists already expected. Given that judgment from the market, it should be safe for the president to brag about the wage increase, without worrying that it’s coming too much at the expense of his friends in the investor class.

But there is another issue: Faster wage growth may make the Federal Reserve more convinced it should continue raising interest rates to discourage inflation, at a time when Trump has attacked the Fed for being too quick to raise rates. After all, one argument against higher interest rates is they could choke off desirable pay increases; these numbers suggest the Fed’s rate hikes have not done that, so far.

I doubt the president wants to give the Fed more ammo to continue its rate-hike campaign. Still, it seems like more money in workers’ pockets is an obvious thing for him to take credit for, and he likes taking credit for things almost as much as he likes low-interest rates.

Wage Growth Is Improving. Does President Trump Care?