CHART OF THE WEEK
With an unemployment rate at its lowest since 1970 and a remarkably high resignation rate, signs of labour market tension are clear. Many assets depict the hardship companies are having in hiring in particular sectors. This tension began to trigger a more significant acceleration of wages.
While the annual growth of the overall hourly wage index slowed last November, it remains among the highest levels since 2009; the hourly wage measure for non-management categories equivalents (production employees and without supervisory duties) is still climbing. At 3.2%, growth is at its strongest since 2009, and still strengthening.
OUR ANALYSIS
No slowdown in the pace of job creation has been detected. It is therefore likely that wages will further increase in 2019. If this is the case, companies will find themselves under pressure to push these wage rises into prices, which would sustain inflation.
Various central bank members have insisted on the need or the possibility of taking a break in 2019, even though Fed funds rates (2) are nearing a level considered to be neutral for activity. Admittedly, the observed stagnation of the residential sector, a traditionally advanced economic sector, may encourage such a behaviour.
A further boost in wages and the reversal of the current residential sector trend would be the worst-case scenario for the Fed. What should be prioritised? A recovery of the residential sector could, however, maintain the current pace of four rate increases per annum.
Fed (1) : Federal Reserve System, also known as the Federal Reserve, the central bank of the United States
Fed funds rate (2): Federal fund rate, rate at which depository institutions lend reserve balances to other banks on an overnight basis
The opinion expressed above is dated December 13th 2018, and liable to change.
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