The No. 1 expense for businesses is employee salaries and hourly wages. When unemployment levels are low, that leads to a scarcity of qualified workers on the job market, which forces employers to offer higher and higher pay. Wes Moss, chief investment strategist with Capital Investment Advisors and host of the weekly radio show "Money Matters," says that fast-growing wages are a sure sign of a coming recession.
"Wage inflation is the black widow of economic indicators," Moss says. "When wages grow 4 percent or more year after year, it becomes an unsustainable expense for businesses and they have to slow growth and cut jobs."
Despite substantial economic gains over the past 10 years and a near record-low unemployment rate, real wages have lagged behind. From September 2017 to September 2018, wages grew only 2.9 percent, well below Moss' 4 percent threshold. But with wage growth on a slow and steady rise since the end of the Great Recession, the possibility of future cutbacks is still very real.