Following the previous articles showing that US salaries are on the rise, here is another interesting piece showing that wages are rising at a pace that is faster than 2% y/y.
The Average Hourly Earnings component of the Non-Farm Payrolls report seems to be the outlier. If it catches up, the Fed could raise rates earlier than currently predicted. Here are key data that point higher. Can we see a rate hike in March?
Jim O’Sullivan, chief US economist at High Frequency Economics wrote for FT Alphaville. Here are key points of the article, followed by additional points of my own. You are of course welcome to read in entirety:
- Personal income data show wages per hour are up more than 3% y/y.
- Total wage income encompasses a 2% growth rate in hours worked, is up 5% y/y.
- The compensation series used to measure unit labor costs is up more than 3%on a per hour basis.
- The Employment Cost Index is up 2.3%, but is currently at the highest pace since 2008. More about the ECI development here.
- Data on tax receipts show a rise of 5-6%, along the lines of the 5%+ rise in the aforementioned total wages report.
- Quits are at the highest since 2008, and this is certainly a sign of confidence.
- And also the fall in unemployment shouldn’t be frowned upon. Quoting directly from the article: “inflation and wages are lagging indicators and unemployment is falling rapidly. The unemployment rate was 7.2% twelve months ago; the 1.4-point decline in the past year is the largest in 30 years”.
- Employment is growing at twice the rate of the working age population.
More evidence, that doesn’t appear in the article, coming from the independent measure by ADP, which shows that wages are rising faster than officially measured.
At this point of unemployment in the past, the Fed raised rates. History doesn’t fully repeat itself, and neither does the participation rate, which is quite low. So, past correlations may not work in the exact same way, but they can certainly provide a clue.
We can also expect people at existing jobs to receive raises at the beginning of the year, as it is customary in many companies.
So can we expect to see the Average Hourly Earnings rise in early 2015, be reflected in the NFPs for January and February and can this result in a rate hike in March 2015?
We’ll know soon enough.
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