Tom Hudson: This week, wages are the number to watch

It hasn’t been since the winter of 2012 that the U.S. job market has been as hot as it’s been this past spring. While that’s turning the rhetoric on inflation, it’s unlikely to turn up the heat on the Federal Reserve to raise interest rates.

It’s good news that Americans have more employment choices. Companies have been creating new jobs at a pace since February that has added 924,000 new work opportunities in four months. And people are getting paid more. When the June data is released Thursday, wages will be the number to watch.

Pay is up two percent over the past year. No one worries when his or her paychecks get bigger. No one, except monetary policy makers and bond investors when those paychecks are rising fast. It is a fact of inflation that rising wages contribute to a sustained increase in prices, pinching purchasing power.

Inflation worries have been simmering for years. In 2007, it was oil at $149 per barrel that fueled inflation concerns. In 2012, when the Federal Reserve began buying U.S. government bonds in its effort to jump-start the economy, inflation hawks howled that all the money pushed into the economy could only lead to a inflationary conditions. Last year, even the Federal Reserve’s own advisory council expressed concern about “breakout” inflation.

But all along, yearly earnings growth has been mediocre, averaging just over 2%. That’s a Goldilocks level. Prior to the Great Recession, earnings were growing by over three percent per year. While the unemployment rate dropped below the Central Bank’s target of 6.5 percent in April, earnings power, to the frustration of many American households but the comfort of the Federal Reserve, remains in check.

Tom Hudson hosts "The Sunshine Economy" on WLRN-FM in Miami. Follow him on Twitter @HudsonsView.