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Economy is heading toward a ‘soft landing.’ What that means for WA

By Alison Saldanha, The Seattle Times
Published: February 5, 2024, 10:23am

Washingtonians started 2024 with a continued slowdown in pay raises which have now hit their lowest point since inflation first started to climb in 2021, according to recently released payroll data on wage raises.

The payoff for switching jobs is simply not what it was in 2021 as job-changing workers’ gains over those who stayed put narrowed to the smallest gap since the pandemic, according to the ADP Research Institute, which tracks the pay of more than 25 million U.S. workers.

This December, the state also recorded an above-average increase in state unemployment levels as new hires and job postings across the country dipped.

But the latest data for January shows the market is still hot, with more jobs added than economists expected, even as inflation is down from record highs in 2022.

All the data essentially says we are in remarkably good shape, said Jacob Vigdor, an economist with the University of Washington Evans School of Public Policy.

Nela Richardson, ADP’s chief economist emphasized the role shrinking raises are playing into this healthy picture.

“While wages didn’t drive the recent bout of inflation, now that pay growth has retreated, any risk of a wage-price spiral has all but disappeared,” Richardson said, referring to an economic phenomenon that sees costs spike as rising wages drive higher prices that in turn drive still higher wages.

“The economy looks like it’s headed toward a soft landing,” she said.

Over the past two years, that “soft landing” at times looked unlikely as fiscal policymakers attempted to reduce inflation without driving the U.S. economy into a recession.

Experts say the slowdown in pay increases indicates a decreasing churn in the labor market.

“We are moving to a more stable stage than before,” said Liv Wang, lead data scientist at ADP Research Institute, adding that not just in Washington but across the U.S. pay bumps have been slowing down for months. “The post-pandemic pay gain hikes were not sustainable, and we are now coming down from that historical high period to a more sustainable trend,”

Wang warns the deceleration in pay bumps will continue through this year as gains are still much higher than they were early in the pandemic or before.

Vigdor links shrinking raises to a stabilizing leisure and hospitality industry. The industry recorded the biggest pay increases during the pandemic and after, according to ADP data.

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“Slower” pay gains, on the order of 5% year-over-year, look just fine by historical standards, he said. “We are just coming out of a blip that was driven largely by one industry — leisure and hospitality.”

The pandemic was really tough on that industry, he continued. People didn’t travel or eat out as much so hotels and restaurants suffered and then, on reopening, faced pent-up demand.

“A lot of workers discovered that if they switch jobs, they could get big wage increases and if you were hiring in these industries, you had to offer high wages to get workers to show up,” Vigdor said.

“So what’s happening here is that the wages aren’t going down — it’s just that they’re stabilizing at relatively … high levels.”

On unemployment, though Washington reported one of the highest increases this December, the increase of 0.2% is marginal and more likely to be felt outside the Seattle area, according to Vigdor.

“The unemployment rate in the Greater Seattle area is right about where the nation is,” he said, adding that rates everywhere remain historically low, so “small differences from month to month are not adding up to all that much.”

He added it is unlikely that the recent increase in Washington’s minimum wage, now the highest of any state, will affect unemployment or slow pay gains for workers in the state. Labor shortages have driven pay increases more than policy decisions on the minimum wage, Vigdor explained.

“Employers are already offering wages above the minimum for entry-level positions because if you just offer the minimum, it’s hard to find people,” he said, pointing out that the minimum wage in the Seattle area is even higher than the rest of the state and has had no impact on employment rates.

“That helps to paint the picture that higher minimum wages are not causing unemployment,” he said. “Businesses are discovering that they have to pay even more than the minimum if they want to really have a good labor pool.”