In addition, real wage growth is already quite strong, given the very low rate of inflation, and it’s worth noting that traditional wage growth numbers don’t capture benefits and incentives, which have become a much more prevalent form of compensation in recent years.
Looking forward, I’ll be paying close attention to Friday’s July payroll report, and particularly to the average hourly earnings (AHE) component. I expect payrolls growth to continue at a fairly strong pace, and wages should eventually follow employment levels higher, particularly if we continue to see solid recovery in the residential housing sector, allowing higher wage construction jobs to pick up. But if the AHE wage growth figure also disappoints, we’ll likely be looking at a December, rather than a September, Federal Reserve liftoff.
Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Fundamental Fixed Income, Co-head of Americas Fixed Income, and is a regular contributor to The Blog.