A lagging U.S. economic indicator could be leading

Acommon axiom among investors is that the stock market is a leading economic indicator. Traders and shareholders buy and sell stock based upon how they expect a company’s business to perform several months down the road.

Employment data, like most economic statistics, is different. The numbers have to be collected, analyzed and reported. Big decisions represented in economic reports, like those on jobs, can take months to make before they show up in the data.

Take pay hikes. Average annual hourly wages grew by 2.8 percent in the month after the end of the Great Recession. The economic expansion had begun, and the stock market started rallying, yet for three years, wages continued falling. The unemployment rate recovered and corporate profits were booming, but American workers were seeing paltry pay increases.

It seems obvious to say but pay hikes are important to fuel consumer spending. Pay hikes that are more than the inflation rate help workers buy new homes, spend more money and save some, too. Workers in 2016 have seen their pay increases increase, and that’s good news for the economy.

On Friday, the government will release the August jobs report, and it will include the latest wage data. In July, average hourly wages grew by 2.6 percent, the highest annual rate since the early days of this economic expansion. Back then wages were falling fast despite the fact the recession had technically ended.

Now, the pace of pay hikes is rising and it’s central to corporate profits and economic growth, even if it’s been lagging in a mature economic cycle.

ABOUT THE WRITER

Financial journalist Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami, where he is the vice president of news. He is the former co-anchor and managing editor of “Nightly Business Report” on public television. Follow him on Twitter HudsonsView.