Fox Business News interviewed me Thursday morning. I discussed the potential for some fireworks on Friday around the release of the monthly unemployment report.
In the interview, I explain that the economy is growing, and labor markets are tight. The unemployment rate is at 3.8%, its lowest reading since the internet boom in 2001.
You can watch that interview here
In June, the Bureau of Labor Statistics (BLS) reported 6.7 million job openings and just 6.4 million available workers to fill them. That means there are more jobs available than people looking for work.
When demand for something is more than supply, the price usually goes up. This economic rule also applies to workers’ salaries.
That’s great for workers … but bad for the markets. A strong wage growth number suggests that inflation, which has been dormant for nearly a decade, is knocking on the market’s door.
Quitting Is the New Pay Raise
They say: “Quitters never win.” However, that doesn’t apply to quitting for something better.
Workers are quitting their jobs and finding new ones at the fastest pace since the beginning of the millennium. In April, the Labor Department reported that 3.4 million Americans quit to find work elsewhere.
Quitting is the new pay raise. Quitters realized roughly 30% larger annual pay increases in May over those who stayed put, according to the Federal Reserve Bank of Atlanta.
And this job-hopping is occurring across a wide swath of industries, including retail, food service and construction, meaning the entire labor market is growing and in need of workers.
The bottom line is that companies are paying more to attract workers, and that means wages are going up.
Friday’s June Unemployment Release
I will be watching the year-over-year (YOY) growth of average hourly earnings when the BLS releases the June employment report on Friday at 8:30 a.m. Economists estimate YOY average hourly earnings increased to a pace of 2.8% last month, according to Bloomberg.
In early February, YOY average hourly earnings were growing at 2.8%. That sent an inflation panic into markets, causing interest rates to rise and tipping off a double-digit drawdown in the S&P 500 Index.
The pace of wage growth has backed off since then, and the stock market has recovered off its lows. However, there are signs (as noted above) that we might be closing in on 3% YOY average hourly earnings growth.
And this would mean the Fed needs to become more aggressive, picking up the pace of interest-rate hikes. After the June Fed meeting, Chairman Jerome Powell claimed that the economy is “great,” and the Fed would do four hikes this year, rather than the three as previously thought.
Perhaps the one job title that won’t be seeing wage growth is “stock trader.”
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