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Good News — You’re Getting a Raise!

by Chris Poindexter

This is a headline that most people would agree is long overdue. One of the frustrating aspects to the Great Recession of 2007/2008 is that while corporate profits and executive bonuses bounced back almost immediately, wages for the average worker stayed flat for nearly a decade. According to the latest employment figures that trend has started to reverse itself and is likely to accelerate in the days and weeks ahead. What that means in simple terms is that you’re probably getting a raise if it hasn’t already happened.

That may come as a surprise for those with money in the stock market, which is flat to slightly down in choppy, volatile trading. If it bothers you, try not to look. It’s summer so go to a baseball game, take a trip to the beach, plan a picnic do anything but obsess over your 401(k). Corporate profits are still healthy and the stock market will bounce back as soon as the Federal Reserve decides whether or not it’s going to raise interest rates. In the meantime, start thinking about how you plan to spend that raise.

The most likely explanation for poor first quarter performance of the economy is the weather. Regular snowstorms pounded the central and eastern U.S., bringing traffic, and hence commerce, to a grinding halt. Companies put off hiring and job gains took a breather from January to March of this year. Once the weather cleared hiring surged again in April and produced blowout numbers in May. The employment gains have become so significant that companies are starting to realize that if they want to keep good people, they have to pay them more. If you haven’t gotten a healthy raise already, it should be coming fairly soon.

Wage Gains Accelerate

Wages posted average hourly gains of 2.3% over the last 12 months, just topping inflation. For the first time in years Americans were actually seeing an actual raise beyond inflation. That’s still far below average wage gains before the Great Recession, but the numbers are heading the right way. In another ironic twist, higher wages are also a boon to the stock market because consumers have more money to spend, which will also feed increasing wages going forward.

Across The Board Gains

Except for the energy sector, there were healthy gains in high-paying careers in professional services, business and financial services sectors. Car dealerships added more help to deal with healthy automotive sales and construction hiring has picked up and looks to remain healthy through the summer. Young people graduating this year are facing a better job market than they’ve seen in years.

Brighter Days Ahead

There are a lot of reasons for the market to have a frowny face right now. The first quarter economic numbers were dismal, growth in China has slowed, the U.S. dollar is still strong which hurts profits and our competitiveness overseas. Then there’s the seemingly endless drama over Greece and the slowdown in the energy sector. All that adds up to case of depression for the stock market.

The news will get better going forward and the stock market will recover. This is not another 2007 style recession and, while a steep correction can never be ruled out, the economy is not going to collapse. The labor market is back on track for the second quarter and, as soon as the Fed figures out whether it’s raising interest rates, expect to see the market recover with a bang. Hopefully, you won’t notice because you’re having fun spending all that extra money in your pocket.

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