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The recent correction in the stock markets is most likely due to technical factors, and in particular to volatility-selling strategies. However, some analysts perceive the fall as a consequence of higher rates. Since early February, US 10-year yields have climbed to above 2.8%, primarily due to January’s US jobs report that showed slightly higher-than-expected hourly earnings. Indeed, overall annual hourly earnings rose from 2.5% to 2.9%, the highest level since 2009.
The main hourly earnings data series encompasses all workers and is relatively recent as it was first published in 2006. Before then, a different series tracked the wages of non-supervisory, i.e. non-executive, workers in manufacturing activities. The notion of hourly earnings is clearly more appropriate for this category of workers, and shows that wage growth has not really accelerated and is near to 2.4%.
In addition, other more comprehensive measures, such as the quarterly Employment Cost Index, show that although the pace of wage growth is picking up, it is doing so only gradually.
While we still believe that the most likely scenario is for current labour market tightness to eventually result in faster wage growth, drawing hasty conclusions from January’s release would be unwise.
The opinion expressed above is dated 09 February 2018 and is liable to change.
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