Regional Firms Report Wage Growth Returns to Normal Levels

Regional Matters

March 24, 2026

In mid-2021, regional businesses who responded to the Richmond Fed business surveys started to report accelerated wage growth. This wage growth coincided with increasing labor demand and challenges of finding workers with the right skills. In February 2024, we reported that wage growth was returning to normal levels, but it was still greater than prepandemic levels. To better understand if wage growth has returned to more typical levels, we not only analyzed our standard questions on realized and expected wage growth but also added a question in June 2021 to gauge how far firms are from what they would consider "normal" wage growth.

By February 2026, realized and expected wage growth returned to prepandemic levels. Additionally, many fewer firms reported that their expected wage growth was greater than normal. We also found that firms' comments focused less on wages and labor and more on other issues that have affected their businesses.

Wage Growth Returns to Prepandemic Levels

When we last wrote about wage growth in February 2024, firms reported that realized and expected wage growth receded from peak but remained above prepandemic levels. Since then, expected and realized wage growth have continued to decline. In our most recent reading in February 2026, manufacturers reported 3.3 percent realized wage growth and 3.0 percent expected growth, while non-manufacturers reported 3.0 percent realized growth and 3.4 percent expected growth. These growth levels are similar to prepandemic levels.

More Regional Firms Report Expected Wage Growth as "Normal"

When we introduced a question in mid-2021 on the normalcy of expected wage growth, most firms at that time expected wage growth to be higher than what they considered "normal." Over time, the share of firms that expected above normal wage growth steadily declined. As of February 2026, only 21 percent of firms expected above normal growth, while 60 percent expected normal growth, and 18 percent expected below normal growth.

Fewer Regional Businesses Comment on Labor or Wages

For every survey, we invite firms to comment on business conditions. The chart below shows changes in the extent to which labor issues are on the minds of responding firms. In 2021 - when labor was tight and wage growth was strong - firms were very likely to comment on worker availability or wages. In 2021, the share of comments about labor peaked at 20 percent of all comments for manufacturers and 13 percent for non-manufacturers. Since then, the prevalence of labor comments has receded to pre-2021 levels. In 2025, only 8 percent of comments mentioned labor issues, though the share ticked up slightly to 10 percent in the first two months of 2026. Despite the decline in the share of comments devoted to labor, firms continued to report the challenges of finding workers with the right skills. This is especially true in the trades, as one auto mechanic reported that they offered an average wage close to $100,000 to attract workers.

Looking Ahead

In 2021 and 2022, firms reported high realized and expected wage growth due to increased demand and a tight labor market. Since then, according to our surveys, both measures have returned to normal levels. One possible explanation for declining wage growth is reduced hiring. Our manufacturing employment index and non-manufacturing employment index have been declining since 2022. These indexes are now negative for manufacturers and around zero for non-manufacturers. However, firms still report shortages of certain workers, such as those in skilled trades. We'll continue to monitor these dynamics as business conditions evolve across our region.

Views expressed are those of the author(s) and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.