Decent Jobs Report, But Some Wage Growth Would Be Better By Michael Aneiro The word “Goldilocks” has been heard a few times today to describe this morning’s July jobs report, given the decent headline numbers and fairly benign reaction in stock and bond markets alike. That’s maybe a bit euphemistic, given that the report actually fell slightly short of expectations, particularly on the wage front, but that’s seen as positive by anyone who was mainly worried that a strong jobs report might move up the date when the Fed sees fit to raise interest rates. Some bond-market pundits are wondering aloud whether there’s enough in the report to move the Fed’s needle, particularly on the wage front. “None of these data will prompt the Fed leadership need to rethink ‘considerable period’ or their preference for a gradual pace of policy normalization,” write Michelle Girard, Omair Sharif, and Guy Berger of RBS, noting that the report’s flat hourly earnings held the year-over-year rate of wage growth at 2.0%, in line with the trend of the last few years. Here’s Adrian Miller, GMP Securities’ fixed-income strategist: [T]he most important part of the jobs report, at least as it relates to the Fed’s interpretation of the monthly data, is wage growth. And on that front the July data and June revision plays into the doves and centralists on the FOMC hands. Indeed, after the June average hourly earnings was revised down to +1.9% y/y vs. +2.0% initially reported, the July gain was +2.0% y/y, failing to meet expectations of +2.2%. At the same time average weekly hours held at 34.5, a trend that has been ongoing since the start of 2012…. And while the Fed is indeed behind the curve in its rate hike schedule, in the eyes of the doves, so be it! There is simply not enough evidence to suggest the labor market’s slack is coming in quick enough for many on the FOMC with the labor market improving at an unconvincing rate where many weak spots and holes remain. And here’s Sterne Agee‘s chief economist, Lindsey Piegza: [F]rom the Fed’s perspective it’s not just about the headline number, it is about the composition of jobs and whether or not an increase in the quality of employment is translating into wage pressures. In the latest FOMC statement, the Fed was optimistic regarding the recent improvement in the economy, as well as, their expectations for growth going forward. But the biggest impediment to both the recovery and the Fed’s willingness to raise rates remains the “underutilization of labor market resources.” This morning’s employment report – looking beyond the headline number – continues to justify the Fed’s accommodative position. Despite headline employment growth, average hourly earnings remain stagnant, the augmented unemployment rate remains elevated and the participation rate is disappointingly low. Traditionally, six consecutive months of top-line employment growth would be enough to force the Fed’s hand, but traditionally such job creation would suggest underlying growth in wages and a decline in the pool of valuable labor. This time around, the Fed has to rely on other, nontraditional indicators of the labor market to gleam a better sense, a true sense of the health of the US labor market.
Posted on: Sat, 02 Aug 2014 04:13:58 +0000
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