·
“Scare” in wage growth…The Labor Dept Employment Cost Index (ECI) came in
yesterday higher than expected at 0.7%, the largest gain since 3Q-2008 (click
link for full article). This is one of the factors contributing to yesterday’s
2% decline in the stock market.
What’s the
point? There has been consternation
of late among investors regarding the potential for wage pressures,
particularly in areas which require certain technical skills. We do not believe
wage pressures in a few industries should lead to wide scale inflation
throughout the economy. Obviously, the wage data will have to be watched; however,
from a broader inflation perspective, we believe there are still many forces
that should keep inflation from accelerating rapidly. These forces include
demographic trends, global competition, technology (substitution of capital for
labor), low monetary velocity, restrained credit, labor market imbalances, continued
de-leveraging global economy. All of these factors, we believe, are still well
entrenched, and should help to offset wage pressures or concerns over the
inflationary implications of recent Federal Reserve policy. Link: http://money.msn.com/business-news/article.aspx?feed=OBR&date=20140731&id=17822471
·
Demographics affecting wage gains….Employment growth this morning was a perfunctory 209,000,
below expectations and about in line with the average of the past year. 32% of
the jobs were in low wage sectors. The unemployment rate actually rose to 6.2%.
What’s the
point? Today’s employment report
reflects “more of the same” and allays some of the fear created by yesterday’s
jump in the Employment Cost Index (ECI). The July data indicate employment
growth remains in line with its moderate growth trend. Of greater concern (see
article) is the fact that low wage jobs continue to represent a significant
portion of new jobs and even in traditionally higher paying industries, wage
gains remain scant and job mobility is low. Millennials are also having a
difficult time as a group finding gainful employment and account for a large
portion of people who have dropped out of the labor force. None of this data
support wide-scale wage pressures. These are also some of the key factors
causing the Federal Reserve to maintain its current [accommodative] monetary
policy. Moreover, the data would suggest yesterday’s market swoon in response
the ECI was probably an overreaction. Link: http://finance.yahoo.com/news/baby-boomers-at-work-while-millennials-sit-out-of-job-force-163454443.html
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