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The  US  enjoyed another strong month of  job gains in December, but a big disappointment came from the drop in wages: 0.2% m/m and a slide to a gain of only 1.7% y/y. This casts  a lot of doubts whether the Federal Reserve will be able to raise rates in 2015.

However, here are 3 reasons to expect a big rebound in wages in January:

  1. Minimum wage hikes: No less than  20 US  states see hikes in the minimum wage in January: 9 states raise the minimum wage via automatic adjustments and 11 more through changes in legislation or the ballot box. In quite a few states,  voters opted for a hike in the minimum wage. This is significant.
  2. Annual pay rises: People  remaining in the same jobs often  discuss  a wage hike towards the end of the year and see this wage hike in the payrolls for January. Many workers did not see  any pay raise during the long years of the crisis but now conditions are ripe for raises. If companies don’t offer a raise, workers can now get one by switching jobs in a much easier manner.
  3. Low paying jobs in December: The holiday season sees  temporary hiring for the retail sector among others. These are often low paying jobs, and they may have skewed the general picture. In January, we could get back to normal business.

All in all, the US economy is doing well, and evidence of raises have been seen in via other measures: the Employment Cost Index and the  ADP Workforce Vitality Index. The “missing piece” is the most important one: the average hourly earnings.

Will wages rebound? An answer is due in the next NFP released on February 6th.

Update Feb. 6: Indeed, the superb jobs report for January shows a gain of 0.5% m/m and 2.2% y/y. A big comeback.