Hourly Wages. As evidenced by last week’s report on personal income, lackluster wage growth is still a major problem. The economy is not creating jobs at a fast enough rate to overcome the structural headwinds – technology and the global labor arbitrage – that are suppressing real incomes. Last month, hourly wages decelerated to a 1.8% growth rate, a 9-month low. Assuming wage growth remains stuck below 2%, this would confirm the lack of any organic income growth and suggests that the recent jump in consumption may not be sustainable.
To be sure, investors should never place too much importance on any one economic number, particularly one that is potentially distorted by exogenous factors like weather. For that reason, I don’t think the Fed will be moved to change its current policy, regardless of Friday’s nonfarm payroll report.
Still, in the event of another weak number market, participants will want to at least revisit their assumptions regarding the U.S. economy. Another weak month, particularly if wages remain stagnant, suggests that, once again, economic optimism may need to be tempered.
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.