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Could November’s Wage Growth Shake the Markets Again?

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Wage growth in October

Wage growth will likely be the most closely watched component of the US (VOO) jobs report. The metric has long been considered a missing piece of the otherwise strong labor market. While wage growth had disappointed market participants for the last few months, October’s wage growth was not disappointing. For October, the average hourly earnings increased by 83 cents YoY, implying an annual gain of 3.1%. October was the first time since April 2009 that wage growth has topped 3.0%.

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Wage growth expectations

Economists expect the wage growth momentum to continue as the unemployment rate remains low and job additions remain buoyant. For November, economists are expecting wage growth of 3.1% compared to a year earlier for the second consecutive month.

Another factor that should potentially boost wage growth is Amazon’s (AMZN) wage hike. Amazon announced in September that it will increase the minimum wage for its US workers to $15 per hour starting November 1. Amazon also mentioned that it will lobby to raise the federal minimum wage. This wage hike from Amazon is also expected to put additional pressure on other retailers (XRT) to hike wages.

Wage growth and the economy

Currently, the economic and job market conditions support strong wage growth expectations. However, hotter-than-expected wage numbers could drive the market into a selling frenzy. Higher wage growth would mean tightening inflation (TIP) pressure, which could encourage the Fed to remain on the rate hike path and be even more aggressive about it.

The markets have already been quite wary of the rising interest rate environment. As we highlighted in Does the Sell-Off Imply Market Repositioning for Lower Growth, US markets (SPY) (DIA) saw sell-offs as rising bond yields and signs of firming inflation have spooked investors.

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