the Employment Situation–now scanning the horizon for wage increases

the Employment Situation

Last Friday morning the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report for September.  The numbers were good– +248,000 new jobs added in the economy, +236,000 of them in the private sector.

Revisions were also favorable.  July figures were boosted from +212,000 to +243,000, and the worrisome +142,000 number posted for August was revised up to +180,000.

With last month’s poor employment gain showing now being interpreted as simply a hiccup in the reporting system rather than an indicator of a slowdown in hiring, the stock market’s attention is beginning to turn toward the wage gain information in the ES, rather than the employment numbers themselves.

wage gains?

what counts aw wages in the ES?

The figure itself appears to me to be pretty solid.  It’s derived from actual gross wage figures reported by the large number of substantial private sector firms who are participants in the BLS Establishment survey.  There is some government estimation, in the sense that the participating firms are thought to be representative of the economy as a whole.  But the data aren’t estimations.  They’re the real, complete salary figures.

The figures are gross, in the sense that they are before any deduction for taxes or benefits.

They’re salary figures only.  They don’t include payroll taxes that employers pay.  They also don;t include health or retirement benefits that employees may receive.

the current rate of wage gains…

…is 2% per year.

In one sense, this suits the Fed just fine.  The absence of sharp upward pressure on wages means the central bank doesn’t have to hurry to raise interest rates to stave off potentially runaway inflation (in the US, inflation is almost completely about wage gains).  The low number implies that employers can easily find all the qualified workers they need to grow their businesses either from new entrants into the labor market or from the currently unemployed.  They don’t need to poach new hires from rivals by offering very large pay increases.

On the other, it’s kind of eerie that the Fed can have had the monetary stimulus taps more wide open than ever before for over five years and not have wages be rising faster than this.

The wage gain numbers will increase in importance to Wall Street in the coming months, I think, as the Fed prepares to start raising the Federal Funds rate from the current level of zero.

My sense of the consensus belief is that:

–rates will being to rise next Spring,

–the “normal” rate is not the 4.0%-4.5% the Fed was talking about in 2012-13, but rather 2.5%-3.0%, and

–the Fed Funds rate could be halfway back to normal by the end of 2015–meaning five or six quarter-percent moves next year.


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