WATCHING WAGES

By John J. Canally, Jr., CFA Chief Economic Strategist, LPL Financial

Weekly Economic Commentary, May 13, 2015

The April 2015 Employment Situation report (released on Friday, May 8, 2015) indicated that the labor market bounced back in April 2015 after a difficult March, but that wages — as measured by average hourly earnings — remained tepid, up just 2.3% from a year ago, still well below the 4%+ wage gains seen just prior to the 2007 – 09 Great Recession. Despite the solid but not spectacular April employment report, wage growth — or lack thereof — likely remains a concern for Federal Reserve (Fed) policymakers as they continue to debate when they will begin raising rates in this cycle. Our view remains that the Fed may begin to hike rates in late 2015. The next Federal Open Market Committee (FOMC) meeting is June 16 – 17, 2015.

Despite the tepid wage growth economy-wide, signs that wage pressures may be building in segments of the economy have begun to appear in recent months, most recently in the latest Fed Beige Book, released in early April 2015, ahead of the April 28 – 29 FOMC meeting.

The April 2015 Beige Book noted:

Firms in many Districts, including Richmond, Atlanta, St. Louis, Kansas City, and Dallas, reported having difficulty finding skilled workers, especially in professional and business services and the IT sectors. The Richmond, Atlanta, and St. Louis Districts specifically noted an increasing incidence of voluntary turnover of employees.

This week, May 11 – 15, 2015, financial markets will digest the Job Openings and
Labor Turnover Survey (JOLTS) report for March 2015. Although often overlooked
by the financial markets, the JOLTS report contains several labor market indicators
that Fed Chair Janet Yellen says she and her colleagues on the FOMC are are watching
closely [Figure 1].

Despite the tepid wage growth economy-wide, signs that wage pressures may be building in segments of the economy have begun to appear in recent months.

WAGES IN FINANCIAL SERVICES, HEALTHCARE & MINING
LEADING THE WAY

As we wrote in our March 30, 2015, Weekly Economic Commentary, “March
Employment Report Preview,” a decisive upturn in wage inflation remains key to moving inflation and inflation expectations higher; and in the past several months…

Read the Full Report here: Economic Commentary 05112015

Job Openings and Labor Turnover Survey (JOLTS) report for March 2015.
Job Openings and
Labor Turnover Survey (JOLTS) report for March 2015.