(AP) — Pay and benefits for America’s workers grew in the final three months of last year at the slowest pace in two and a half years, a trend that could affect the Federal Reserve’s decision about when to begin cutting interest rates.
Compensation as measured by the government’s Employment Cost Index rose 0.9% in the October-December quarter, down from a 1.1% increase in the previous quarter, the Labor Department said Wednesday. Compared with the same quarter a year earlier, compensation growth slowed to 4.2% from 4.3%.
The increase in wages and benefits was still mostly healthy, but the slowdown could contribute to the cooling of inflation and will likely be welcomed by Federal Reserve policymakers. The Fed is expected to keep its key short-term rate unchanged after its latest policy meeting concludes Wednesday. It may signal, however, that it’s getting closer to cutting its rate later this year.
“Not great news for our paychecks, but good news for inflation and the prospect of meaningful” interest rate cuts by the Fed, said James Knightley, chief international economist for European bank ING.
While Fed officials have signaled they will lower their benchmark rate this year, they haven’t signaled when they will begin, a decision eagerly awaited by Wall Street investors and many businesses. The slowing wage gains could make the Fed more comfortable cutting its rate as early as March, economists said. Still, most analysts expect the first cut will occur in May or June.
When the Fed reduces its rate, it typically lowers the cost of mortgages, auto loans, credit card rates, and business borrowing.
The pace of worker compensation plays a big role in businesses’ labor costs. When pay accelerates especially fast, it increases the labor costs of companies, which often respond by raising their prices. This cycle can perpetuate inflation, which the Fed is assessing in deciding when to adjust its influential benchmark rate.
Since the pandemic, wages on average have grown at a historically rapid pace, before adjusting for inflation. Many companies have had to offer much higher pay to attract and keep workers. Yet hiring has moderated in recent months, to levels closer to those that prevailed before the pandemic. The more modest job gains have reduced pressure on companies to offer big pay gains.
The Federal Reserve considers the ECI one of the most important gauges of wages and benefits because it measures how pay changes for the same sample of jobs. Other measures, such as average hourly pay, can be artificially boosted as a result of, say, widespread layoffs among lower-paid workers.
Even as wage increases slow, inflation has fallen further, leaving Americans with better pay gains after adjusting for rising prices. After taking inflation into account, pay rose 0.9% in last year’s fourth quarter, compared with a year earlier, up from a 0.6% annual gain in the previous quarter.
Growth in pay and benefits, as measured by the ECI, peaked at 5.1% in the fall of 2022. Yet at that time, inflation was rising much faster than it is now, thereby reducing Americans’ overall buying power. The Fed’s goal is to slow inflation so that even smaller pay increases can result in inflation-adjusted income gains.
As a big winter storm rolled across the United States in mid-January, many news outlets reported on drivers of electric vehicles dealing with dramatically reduced range and multi-hour waits at public charging stations. Driving an EV in freezing weather indeed poses extra challenges compared to a gasoline-powered vehicle. But it’s also possible to employ techniques that can make EV winter driving less challenging. The car experts at Edmunds report on what you can do.
WHY EVS SUFFER IN WINTER DRIVING
Freezing temperatures slow down chemical reactions in batteries. You’ve likely experienced this with a regular car when its 12-volt battery struggled to start the engine. It’s the same with an EV. Their batteries work best in warmer temperatures, and the vehicle will actually use some stored energy to warm up its battery if it’s cold. An EV also needs to use its battery to run the cabin heater, heated seats, and so forth. All of these issues can combine to noticeably reduce range.
How bad can it get? Expect a range reduction of 20% to 30% in very cold weather. That means an EV with a usual maximum range of about 250 miles might only have 175 miles in freezing temperatures, for example. Cold batteries also charge slower at fast-charging stations.
CHARGE AT HOME AS MUCH AS YOU CAN
If possible, keep the battery topped up by charging at home every day. While most automakers recommend keeping your EV charged to 80% for typical driving to enhance battery longevity, consider charging to 100% in winter conditions to give you the most range possible to help offset reduced range. By charging at home, you can avoid public fast-charging stations that might be crowded or not functioning optimally.
WHEN TO USE PUBLIC FAST-CHARGING STATIONS
EVs don’t charge as quickly at high-powered charging stations in very cold weather, which can lead to delays. If you can’t charge at home or at work, try using public charging stations during the least busy hours such as early in the morning or late at night to better avoid any long lines. Also, make sure that your EV is set to precondition the battery before charging at a fast-charging station. In cold temperatures, EVs can heat their battery up to the optimal temperature needed for fast charging. This preconditioning uses some of the battery’s power but will improve charging speeds.
KEEP YOUR EV’S BATTERY TOPPED UP
Charging frequently can help you be prepared in case of power outages or unforeseen traffic delays. For example, consider charging every day at home even if you don’t really need to. For the reasons noted above, it might be harder to charge at a public location if you need to. But you can still look for convenient opportunities to charge when it’s not a necessity. Just make sure you’re not holding up other EV drivers who also might need to charge.
PREHEAT THE CABIN AND BATTERY
One of the best tips for wintertime EV driving is to preheat the cabin before you drive. Not only does that make the car warm for you, preheating also warms the battery before you drive. It’s best to preheat your EV while it’s charging at home because it won’t drain the battery’s charge. Most EVs can preheat via an integrated smartphone app.
DRIVE EFFICIENTLY
With a shorter range in winter driving, it’s important to drive as efficiently as possible by using the Eco drive mode if your EV has one. It increases its efficiency by limiting its power. If you don’t have an Eco mode, then one of the best ways to drive efficiently is by not accelerating quickly. If your battery is low, consider using the heated seats and heated steering wheel if you have them instead of the heater, which uses a lot of the battery’s energy.
CONSIDER GETTING EV WINTER TIRES
Just as with gas-powered vehicles, swapping out an electric vehicle’s all-season tires for winter tires can significantly improve traction and braking performance on snowy or slippery roads. Many tire manufacturers make winter tires specifically for EVs. It’s also important to keep the tires inflated to the manufacturer’s recommended level to get the best efficiency and winter weather performance.
EDMUNDS SAYS
Incorporating the above tips will make wintertime driving in an EV easier. But also check your vehicle’s owner’s manual for additional tips and recommendations for wintertime driving.