Waiting for wage and income acceleration

Later today President Obama will officially release his administration’s proposed budget for the next fiscal year beginning in October 2015. Just as with his State of the Union address, many of the proposals in the budget have already been announced or previewed in some manner. But unlike previous budget proposals from the Obama Administration, where the focus was on how large the budget deficit will be, the focus will be on purported solutions to what David Leonhardt of The New York Times calls the “great wage slowdown.” Even though the economic recovery is taking hold, there are still many areas for improvement.

On Friday the U.S. Bureau of Economic Analysis released their first estimate for GDP growth in the last quarter of 2014. GDP grew 2.6 percent on an annual basis, resulting in a GDP growth rate of 2.4 percent for the whole of 2014. In 2013, GDP grew 2.2 percent and 2.3 percent in 2012. So the overall economy has been growing at a steady and unspectacular level for the last several years.

And the labor market recovery is continuing apace as well. The unemployment rate has dropped significantly over the past year and total job growth has been strong enough to make a dent in the jobs lost in the recession, averaging about 250,000 new jobs a month. But broader measures of the labor market show there’s a ways to go. The employment-to-population ratio hasn’t moved up nearly as much as the unemployment rate has gone down. Wage growth has yet to accelerate while incomes are still stagnant for many households.

With these trends in mind, there are two data sets to look at in the coming week. Later today, the Bureau of Economic Analysis will release data on Personal Income and Outlays, which will show how much income is coming in and then going back out in the form of consumption. The Wall Street Journal highlighted the large inequality in consumption during this recovery, so that’s something to keep in mind when looking at the average data that the BEA releases today.

And on Friday, the Bureau of Labor Statistics will release its monthly Employment Situation Report, better known as the jobs report. Given the steady pace of the recovery so far, the headline figures—nonfarm employment growth and the unemployment growth—should only create news if there is some large swing.

Here are two numbers to keep an eye on.

First, be sure to look at the share of prime-age workers (25-to-54 years old) with a job. The movements in the overall U.S. unemployment rate can be complicated by long-term trends in the labor force participation rate due to demographics and the fact the many workers leave the labor force during times of economic weakness. But if you’d like to know how many workers in their best working years have jobs, then the prime-age EPOP is your friend.

Second, look at the year-on-year growth rate in average wages. Wage growth is important not only because it’s indicative of how well the average American is gaining from the recovery, but also as a measure of labor market slack. Once wage growth has picked up, then we can say that labor market recovery has really accelerated.

The recovery’s steady pace and wage growth that hasn’t increased in the last 4 years needs to change. The current rate isn’t enough to make a dent in the many economic issues of the day. Slow and steady won’t win the race this time.