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U.S. Employment and Wage Growth Improving Faster Than Expectations

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U.S. Government estimates on the state of the economy may be overly conservative in the area of wage growth, according to a new analysis from Principal Global Investors.

Chief Global Economist Bob Baur and Economist Robin Anderson analyzed data from the retirement plan clients of the Principal Financial Group(R) and concluded wage growth in the United States may be greater than government studies indicate. Wage growth is one of the primary signs the Federal Reserve uses to indicate that the labor market has been restored.

“Economic expansion in the United States is healthy and robust,” said Baur. “Evidence of wage growth could be just what is needed to build consumer confidence and start the process of interest rate normalization.”

The research tapped into two sets of data based upon plan information from The Principal’s defined contribution (DC) clients: the number of eligible employees for DC plans and anonymous annual salary data.

“It is worth noting, The Principal data is different than the government’s. Our clients are more skewed to small- and medium-sized businesses than those surveyed by the Bureau of Labor,” notes Anderson. “However, with such a large number of clients and eligible employees, we can find some pretty meaningful trends.”

Findings include:

  • Median annual wages have grown from 1% to 3% from 2013 to 2014 versus the U.S. Census Bureau calculation of 1.7%.
  • The Principal index showed the output gap, the difference between the actual state of the economy and the economy operating at capacity, closed in the second quarter of 2014 while the Congressional Budget Office estimate is still 3.2% below trend.
  • As the U.S. economy has continued on its modest recovery, The Principal’s defined-contribution clients – mostly small- to medium-sized businesses – have hired at an increasing rate.

Based on data gathered from The Principal’s retirement-plan clients, the paper details how wage growth has jumped in the most recent periods, indicating that it may be time for the Federal Reserve to start normalizing interest rates and tightening monetary policy.

Read the full report here.

About Principal Global Investors
Principal Global Investors is a diversified asset management organization and a member of the Principal Financial Group(R), with expertise in equities, fixed income and real estate investments, as well as specialized overlay and advisory services. Principal Global Investors manages $326.9 billion in assets1 primarily for retirement plans and other institutional clients2.

About the Principal Financial Group
The Principal Financial Group(R) (The Principal(R))3 is a global investment management leader offering retirement services, insurance solutions and asset management. The Principal offers businesses, individuals and institutional clients a wide range of financial products and services, including retirement, asset management and insurance through its diverse family of financial services companies. Founded in 1879 and a member of the FORTUNE 500(R), the Principal Financial Group has $513.5 billion in assets under management4 and serves some 19.5 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.

1 As of Sept. 30, 2014.
2 Principal Global Investors is the asset management arm of the Principal Financial Group(R) (The Principal(R)) and includes the asset management operations of the following subsidiaries of The Principal: Principal Global Investors, LLC; Principal Real Estate Investors, LLC; Principal Enterprise Capital, LLC; Liongate Capital Management LLP; Spectrum Asset Management, Inc.; Post Advisory Group, LLC; Columbus Circle Investors; Edge Asset Management, Inc.; Morley Financial Services Inc.; Finisterre Capital, LLP; Origin Asset Management, LLP; Principal Global Investors (Europe) Limited; Principal Global Investors (Singapore) Ltd.; Principal Global Investors (Australia) Ltd.; Principal Global Investors (Japan) Ltd.; Principal Global Investors (Hong Kong) Ltd.; CIMB-Principal Islamic Asset Management Sdn. Bhd.; and the majority owned affiliates of Principal International, Inc. Assets under management includes assets managed by investment professionals of Principal Global Investors under dual employee arrangements with other subsidiaries of The Principal and assets managed in accordance with investment advice provided by Principal Global Investors through the delivery of a model.
3 “The Principal Financial Group” and “The Principal” are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
4 As of Sept. 30, 2014.

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