Wage Pressures Driving North – Fed Tied in a Box

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The US economy took on more jobs than expected in August, and wage growth touched a post-recession high.  Nonfarm payrolls grew by 201,000 in August. Economists surveyed by Reuters expected a 191,000 increase.

Fed Impact?

The question remains, with emerging markets in flames  (currency volatility at ten-year highs), what does this do the policy path of the Federal Reserve?  More rate hikes and a stronger US dollar will only add fuel to the emerging market’s fire (EM equities are 20-40% off this year’s highs, they’re in flames).  Our investment thesis is laid out in our most recent note, join us here.

US Midterm Election Impact?

Ahead of the 2016 election, wages moderated lower in key swing States, but they’ve averaged nearly 2.8% in 2018, up from 2.4% the prior 3 years. The Atlanta Fed, which tracks the same workers over time, reported a 3.3% annual gain in wage growth in July.  We MUST connect the DOTS here.  What’s the impact of rising wages on the U.S. midterm elections in November?

First Midterm Election, Seats Won+ or Lost- in the House

2010 Obama: -63*
1994 Clinton: -54*
1982 Reagan: -27
1978 Carter: -15
1990 Bush: -8
1962 Kennedy: -4
2002 Bush W: +8
1972 Nixon: +12

*Lost control of the House Wikipedia.  We can talk about Russians and family separation all day long, but we MUST weigh the impact of surging wage growth.

Wage Pressures Driving North
Average hourly earnings jumped by 2.9 percent, above the 2.7 percent increase expected.  The unemployment rate held near a generational low of 3.9 percent.  The wage growth was the highest since April 2009.

Out of the Deadzone

Long-awaited wage growth posted its biggest increase of the economic recovery in August while payroll gains beat expectations and the unemployment rate held near a generational low of 3.9 percent, according to a Bureau of Labor Statistics report Friday.

Fiscal Stimulus in the USA Ends 15 Year Down Trend in Nominal GDP, now up at +5.4% Growth
Average hourly earnings rose 2.9 percent for the month on an annualized basis, while nonfarm payrolls grew by 201,000. Economists surveyed by Reuters had been expecting earnings to rise 2.7 percent, payrolls to increase by 191,000 and the jobless level to decline one-tenth of a point to 3.8 percent.

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