ECONOMIC PREVIEW: Faster job gains are great but bigger paychecks still await

WASHINGTON (MarketWatch) — Like an assembly line, the U.S. has been churning out healthy job gains of more than 200,000 a month for over a year. The pickup in hiring is great, but it’s not enough by itself to push the economy to greater heights.

The next step is for all the new hiring to boost worker pay, and in turn, give Americans more confidence to spend some of their extra cash.

The first may be easier than the second.

Already, there’s widespread signs wages are starting to accelerate. Several key government measures, including the employment cost index, show a clear bump in how much companies are paying workers. Many large firms in sectors such as retail have also raised their lowest wages as competition for talent intensifies.

With another 200,000-plus gain in new jobs expected in June, Wall Street is now mainly looking to see if the monthly employment report due on Thursday offers more evidence of rising wages. The report comes out a day earlier than usual because of the July 4 holiday.

In May, hourly wages rose for the fifth straight month to put the increase over the past year at 2.3%. That’s the highest level since 2009 and many economists predict wages will continue to climb toward the 3% mark that usually prevails as an economic expansion reaches its peak.

What’s putting upward pressure on wages is a dwindling pool of available workers as the unemployment rate, now at 5.5%, creeps toward 5% or below for the first time in eight years. Many businesses complain they can’t find enough good help, and the easiest way to rectify that is to offer higher pay.

“As the job market tightens you should see wages go up,” said Scott Brown, the Florida-based chief economist at financial advisor Raymond James.

Not everyone is convinced annual wage growth will soon hit the 3% mark, however. Some 17.1 million Americans who want a good full-time job still can’t find one, an unprecedented number six years into a recovery. They might be willing to accept more modest pay, limiting the growth in worker incomes for an indefinite period.

Even if pay rises a bit faster, Americans have shown a reluctance to spend more than they already do, especially with health care and higher education eating up a higher share of their budgets.

Times are different. These are not the go-go days of the late 1990s and consumers can’t use their houses as piggybanks as they did in the early 2000s, when home equity lines of credit were common.

The calamitous 2007-2009 downturn, what’s more, may have altered people’s spending patterns much like the Great Depression. The searing experience of losing a job, seeing others lose a job or not being able to find a job still sticks in the minds of millions of Americans.

“People may be still shell shocked from the severity of the recession,” said Ryan Sweet, director of real-time economics at Moody’s Analytics. “Based on economic fundamentals, the level of spending should be higher than it is today.”

Brown of Raymond James agrees. “The middle class has had a really tough time during the last 10 years.”

Yet time usually heals all wounds and the steady increase in job creation certainly has given Americans more hope. Consumer confidence has repeatedly touched postrecession highs, aided by a record number of job openings and the lowest level of layoffs in 15 years.

If that keeps up, higher wages and more spending are bound to follow. Just don’t expect Americans to return to their free-spending ways.