uploads/2015/04/wage.png

Wage Growth Beats Expectations for March

By

Updated

Strong employment rates

According to the Bureau of Labor Statistics (or BLS) report from March 24, the unemployment rate was unchanged at 5.5% in March, or about 8.6 million people. The underemployment rate includes discouraged workers—people who want to work, but have given up looking. In February, the underemployment rate decreased to 10.9%, from 11.0%.

Article continues below advertisement

Wage growth improves

Wage growth was quite dismal for last few months and had been the dark spot of the labor market report. However, this trend reversed in March. While most of the other labor market indicators were below expectations, wage growth beat market expectations. Average hourly earnings rose by $0.08, or 0.3% month-over-month and 2.1% year-over-year to $24.86 in March. These beat market expectations of wage growth of 0.2% and 2.0%, respectively.

Wage growth is a very important component of the labor market. It needs to pick up significantly and sustainably in order to give strength to the labor market.

Higher wages usually contribute to more consumer spending, which accounts for close to two-thirds of the US economy. Wage growth translates into economic growth and is a significant part of the overall equation.

Wage growth and gold prices

The Fed is watching the overall labor market. Wage growth is one of the missing components and could support inflation, which has been anemic and one of the reasons the Fed is deferring its rate hike.

Wage growth supports economic growth. Strong wage growth is usually negative for gold prices (GLD) and stocks such as Eldorado Gold (EGO), Yamana Gold (AUY), Newmont Mining (NEM), and Agnico Eagle Mines (AEM).

It is also negative for ETFs investing in these stocks such as the VanEck Vectors Gold Miners ETF (GDX). EGO, AUY, and NEM make up 4.1%, 4.2%, and 5.5%, respectively, of GDX’s total holdings.

Advertisement

More From Market Realist