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Amazon’s Hike Could Increase the US Economy’s Wage Growth

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Oct. 4 2018, Published 9:01 a.m. ET

Wage growth

Wage growth will likely be the most closely watched component of the US (SPY) (VOO) jobs report. While unemployment levels are at multiyear lows, the wages haven’t increased accordingly. In August, the wage growth was stronger than the previous few months. In August, the average hourly earnings grew 2.9% on an annualized basis, which is the highest level since June 2009. The earnings also surpassed economists’ expectations of a sequential rise of 0.2% and annual growth of 2.7%.

Economists expect the wage growth momentum to continue as the unemployment rate remains low and job additions remain buoyant.

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Amazon increases minimum wages

Amazon (AMZN) announced that it will increase the minimum wage for its US workers to $15 per hour starting next month. Amazon also mentioned that it will lobby to raise the federal minimum wage. Market participants expect other retailers (XRT) to follow suit and increase the wages to attract workers, especially in light of the upcoming holiday season.

Target (TGT) increased its minimum wage to $11 last year. The company promised to increase the minimum wage to $15 by 2020. Walmart (WMT) raised its minimum wage to $11 per hour earlier in 2018.

Wage growth and the economy

Currently, the economic and job market conditions support strong wage growth expectations. Weak wage growth is confusing Fed Chair Jerome Powell and many others. Powell called weak wage growth a “puzzle” and said that he “certainly would have expected pay raises to react more to falling unemployment.”

Since other US economic indicators point to a strong economy, it’s time that wage growth catches up and builds on the gains achieved in August.

Even after the wage growth exceeded the expectations in August, in the report released on September 7, the markets didn’t panic like in February, but settled slightly lower. The broader market S&P 500 Index (SPY), the Dow Jones Industrial Average Index (DIA), and the NASDAQ Composite Index (QQQ) fell 0.22%, 0.31%, and 0.39%, respectively.

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