Wall Street hasn’t had much to cheer about lately. But there are some signs that rank-and-file workers do.
You might not think so, given a very weak government jobs report on Friday, yet many employees have actually been climbing out of the financial hole in which they have been mired since the Great Recession.
Where the economy is heading now isn’t clear. But consider the overall picture since the recession ended in 2009. Until about a year ago, big businesses and investors prospered, despite extremely slow economic growth, while wages for most employees languished.
As the Federal Reserve and other central banks pumped out money, corporations racked up handsome profits, and those fortunate enough to hold shares in big companies made fortunes. If you had invested $10,000 in a Standard & Poor’s 500 index fund at the end of February 2009, it would have more than tripled by the end of last year, including dividends.
Rising corporate profits provided fuel for the sizzling stock market. By the fourth quarter of 2011, pretax corporate profits reached 14.5 percent of national income, the highest level since 1950, according to the federal Bureau of Economic Analysis data compiled by Edward Yardeni, an independent market researcher.
What was good for business wasn’t great for workers, however. By 2012, labor’s share of the corporate income pie had dropped to the lowest level since 1951, the Economic Policy Institute, a progressive research group, found. Companies bolstered profits by cutting costs — including the cost of labor — and they got away with it because unemployment was high and jobs were scarce.
“In a weak job market, wages grew very slowly,” said Josh Bivens, the institute’s director of research and policy. They grew so slowly that through last year, median weekly wages for full-time workers were still stuck below their 2009 level when adjusted for inflation, according to data from theBureau of Labor Statistics.
Mediocre economic growth has been a central problem. An annual growth rate of 2 percent has become the new normal. Until recently, growth that slow was viewed as “stall speed” — a rate so feeble that it made the economy vulnerable to an outright recession. Yet despite some scares, the United States economy has continued its snail-like expansion since June 2009.
Almost imperceptibly, the recovery entered a new stage. Over the last year or so, conditions appeared to have changed — for business, investors and workers.
For many rank-and-file workers, the labor market improved significantly, even if the gains have been uneven. The unemployment rate dropped to 4.7 percent from 5 percent in May, the Labor Department reported on Friday, a bright spot in a report filled mainly with grim numbers. For example, job creation slackened sharply, with a net gain of a mere 38,000 jobs. But the report also confirmed that hourly wages have been rising, for a gain of 2.5 percent for the year.
On Wednesday, in the survey known as the “beige book,” the Federal Reserve reported that “tight labor markets were widely noted,” and pay raises were “concentrated in areas of labor tightness.”
A major labor dispute was resolved as striking Verizon workers returned to work last week with a tentative agreement on four-year contracts that would give workers a nearly 11 percent increase in pay over all. Their return should bolster future jobs numbers.
Purchasing power for many workers has finally climbed back to prerecession levels. By March, using inflation-adjusted figures, the Bureau of Labor Statistics reported that median weekly wages had at last surpassed their 2009 peak.
Mr. Bivens cautioned that the real-wage improvement last year was at least partly because of unusually low inflation, and not entirely because of monetary wage increases. Oil, gas and other commodity prices plummeted last year, making wage growth, after adjusting for inflation, look relatively high. “It’s good news, but it’s not clear whether that growth rate for real wages is sustainable,” he said.
Still, labor’s share of the corporate income pie has unquestionably been growing, though it hasn’t regained the prerecession levels of 2007. Reaching that modest goal will require further economic growth. “We’re slowly making headway, but we have a while to go before I’d say conditions were normal,” Mr. Bivens said.
On the other hand, from the standpoint of corporate executives and stock market investors, conditions have worsened considerably over the last year. The market has struggled to hold its own. The S.&P. 500 hasn’t reached a new peak since May 2015. Corporate profits, which had supported the long bull market in stocks, have been weak. In the first quarter of 2016, earnings declined 5 percent compared with the same period a year earlier, Thomson Reuters I/B/E/S estimated.
On Tuesday, Mr. Yardeni summarized the year this way: “Labor compensation is up 5 percent while profits are down 5.8 percent. Workers finally may be gaining income share as the labor market has tightened, boosting both employment and hourly pay. This development is squeezing profit margins.”
Rising incomes spurred consumer spending, which grew in April at its fastest rate since 2014. Inflation remains very low but has been rising. Investors are betting that on the heels of the latest jobs report, the Federal Reserve won’t raise interest rates this month.
Further wage increases and a sustained uptick in inflation could induce the Fed to act later on. But unless such developments are accompanied by much stronger economic growth, neither workers nor businesses nor investors are likely to celebrate very loudly.
An earlier version of this article misspelled the surname of the Economic Policy Institute’s director of research and policy. He is Josh Bivens, not Bevins.
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