Hint of heat in elusive wage inflation for US economy

By | octubre 1, 2017
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The wage inflation debate could intensify this week when the latest wage data out of the US economy is contrasted with reports of US firms struggling to find workers to meet their holiday trading needs.

Wages will overtake jobs growth as the key data point in the upcoming US Bureau of Labor Statistics’ non-farm payrolls release on Friday, which is the first employment survey to capture the impact of hurricane activity. Average hourly earnings in the August survey slowed month-on-month and are tracking at 2.5 per cent over 12 months.

The survey period for the September employment report coincides with Hurricane Irma making landfall. That should significantly dent the headline data, which could show jobs in contraction based on estimates from a loss of 25,000 to a bullish 145,000, according to RBC’s analysis of consensus forecasts. The US unemployment rate is 4.4 per cent.

“The global macro theme for the entire year has been encouraging signs of growth without much hint of wage or inflation pressure,” said Andrew Ticehurst, Nomura rates strategist. “When you see the same sort of trend occurring in a bunch of different places it tells you there’s a powerful underlying theme behind that.”

Target, which is looking for 100,000 seasonal workers, has raised its minimum hourly wage to $US11 from $US10. The market is looking for US average hourly earnings growth of 0.3 per cent month-on-month, ANZ notes.

The economies of the US, Germany, the UK and Japan are at or close to full employment, according to Westpac’s chief economist Bill Evans, without witnessing a wage response. He cites the impact of globalisation, technology, the retirement of higher paid baby boomers, low productivity growth, an absence of pricing power for employers, low inflation and wage expectations, and risk aversion.

Australia’s wage price index has increased by 1.9 per cent over the last year compared to average growth of 3.5 per cent.

Mr Ticehurst does not expect the Reserve Bank of Australia, which meets on Tuesday and is widely expected to leave interest rates on hold at 1.5 per cent, to evolve its message on inflation and wages just yet.

“At the margin they might note that commodity prices particularly iron ore have fallen recently, but against that we’ve had another strong monthly labour force report,” he said.

Westpac currency strategist Robert Rennie agrees the Australian dollar, at US78.33¢, is feeling the pressure. His year-end forecast is US76¢.

With respect to commodity prices, “Whenever you talk to people in the market about iron ore’s wave of production coming out of Australia and a wave of production coming out of Brazil, it’s not happening. You’re running around about 1-ish per cent in terms of increased supply out of Australia and Brazil combined,” he said.

Westpac is anticipating Fed chair Janet Yellen, who speaks on Wednesday in Missouri, to deliver another interest rate hike this year.

“Current financial conditions in the US are as easy as they have ever been and that’s despite the Fed raising rates. Our sense is that you’ve got data momentum and data momentum favours the rate hike in December,” Mr Rennie said.

Financial markets are pricing in a 70 per cent chance of a hike at the Fed’s final meeting of this year. A single hike from the RBA is not priced as a more than 50-50 probability until May 2018.

Morgan Stanley economists find that an increasingly flexible Australian labour market and environment of reduced bargaining power for workers means reliable triggers of inflation cannot be counted on. They also speculate that there is more spare capacity in the economy than the Reserve Bank sees.

Economies further into the business cycle with jobless rates below the non-accelerating inflation rate of unemployment have barely changed inflation and wages.

AMP Capital sees US unemployment at 4.4 per cent and wages growth rising to 2.6 per cent year on year.

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