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January 10, 2015

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Posted: 10 Jan 2015 12:06 AM PST

Fed Watch: Wage Growth - or Lack of - Continues to Surprise

Posted: 09 Jan 2015 12:21 PM PST

Tim Duy:

Wage Growth - or Lack of - Continues to Surprise, by Tim Duy: The December employment report, with its surprising combination of solid job gains and decelerating wage growth, leaves Fed policy up the air.
Headline nonfarm payrolls gained by 252k, while previous months were revised up a net 50k. Job growth continues to accelerate:

NFPa010915

Note the acceleration in aggregate hours worked:

NFPd010915

Such gains suggest the recent acceleration in GDP growth is real and likely to be sustained. From the household survey, we see that the unemployment rate continues to decline. Fed forecasts will once again soon be in jeopardy:

NFPc010915

In the context of indicators previously identified by Federal Reserve Chair Janet Yellen:

YELLENa010915

YELLENb010915

Overall, the story is one of ongoing improvement in labor markets, including metrics of underemployment. Wage growth, however, nosedived during the month:

NFPb010915

I would be wary of this read on wages - strikes me as an aberration that is likely to be violently reversed, but I also stick to what I wrote yesterday:
I believe that an acceleration of wage growth would do the trick, which is why this remains the data to watch in the employment report. If June rolls around with no inflation and no greater wage growth, the Fed will find it challenging to begin normalization. In that case, they would need to focus on the employment mandate or pivot to some financial stability story to justify a rate hike.
Bottom Line: Generally a very solid report. But the wage numbers present a dilemma for the Fed. Simply put, no wage growth means the Fed can't be particularly confident that inflation will trend toward target. Not that a rate hike was imminent in any event; Fed is still looking at June, but they need some more help from the data. Of course, June is still a long way off - we have five more employment reports before that meeting. Time enough for these numbers to turn around. Note that if the wage trend does reverse quickly, policy expectations would shift just as quickly.

'December Employment Report: 252,000 Jobs, 5.6% Unemployment Rate'

Posted: 09 Jan 2015 08:24 AM PST

In case you missed the news. This is from Calculated Risk:

December Employment Report: 252,000 Jobs, 5.6% Unemployment Rate: From the BLS:

Total nonfarm payroll employment rose by 252,000 in December, and the unemployment rate declined to 5.6 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, construction, food services and drinking places, health care, and manufacturing.
...
The change in total nonfarm payroll employment for October was revised from +243,000 to +261,000, and the change for November was revised from +321,000 to +353,000. With these revisions, employment gains in October and November were 50,000 higher than previously reported.
...Eleven consecutive months over 200 thousand. Employment is now up 2.952 million year-over-year.  ... For total employment, 2014 was the best year since 1999.

For private employment, 2014 was the best year since 1997. ...

The Labor Force Participation Rate declined in December to 62.7%. ... A large portion of the recent decline in the participation rate is due to demographics.

The Employment-Population ratio was unchanged at 59.2%... The unemployment rate declined in December to 5,6%.

This was above expectations of 245,000, and with the upward revisions to prior months, this was another strong report.

I'll have much more later ...

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