If you’ve been closely following the news regarding the Federal Reserve meeting or the second-quarter gross domestic product, there are bigger fish to fry.
Wage Growth Good News For The United States Economy
As the graph below indicates, it is possible that wage growth may be accelerating, possibly ending with the achievement of a new milestone that will mark a seven-year high. New information is being released today that will correspond with this idea. Some economists agree, and some argue that we had seen these same signals before, though they did not end in any change to the wage growth.
The biggest news of the week could be an indicator, though, albeit an obscure one, that will be released to the public today by the Labor Department. This indicator would be the employment cost index for the second quarter. According to certain limits and measures, this data has the potential to show that wage growth managed to hit a seven-year high during the April to June quarter. Obviously, this is shamefully good news for the United States economy
As of late, wage growth has been predominantly missing from the economy’s recovery, causing a sort of dreary gloom to settle over the economics in the United States. Consumer spending has decreased and become less vibrant due to the lack of higher incomes, a fact that is, unfortunately, providing businesses with few reasons to invest their time, money, and resources into new production.
In regards to the Federal Reserve, increased wages could potentially offer support and stand to the idea that inflation may end up reaching the 2% target. Since the beginning of 2012, price pressure has been admittedly below target. This action could perhaps provide the central bank with the confidence they need to continue tightening later in 2016.
MarketWatch-polled economists and the consensus was that they expected the ECI to increase 0.6% during the second quarter. Because of a little reading from the second quarter during 2015, a year ago, it is also expected that the headline employment cost index will increase to 2.4% following a year-on-year basis. This rise would mark the fastest pace since early last year.
The ECI that gives out incentive-paid jobs is another separate wage measure. This one is expected to reach a seven year high of around 2.5% during the second quarter. This information comes from Lou Crandall, who is the chief economist at Wrightson ICAP. The ECI report will not be released to the public until after this week’s Fed policy committee meets.
However, Crandall also says that the wage data will play an essential role regarding the Fed’s ideas and thinking about their next meeting, which will be in September. He also noted that if we were to see accelerating wage trends, it would offer Fed officials the confidence they’re looking for in their outlook regarding gradual rate hikes. This would be due to seeing that the world is acting the way they want and expected it.
On the other hand, some other economists remain wary and skeptical. They have made the argument that in the first quarter of last year, there seemed to be a signal or a sign that wage acceleration was just around the bend and about to happen. However, it failed to come to fruition and materialize. A rates strategist for SG Americas Securities, Omair Sharif, said that the Fed would want to see wage gains become even stronger before they accept the idea and are convinced that inflation is going to approach 2%, which is a key factor for giving support to another rate hike. Sharif also said that he believes the accelerated wage gains during the second quarter could perhaps prove difficult to hold steady and sustain. Not just viewing broad-based wage gains.
Finally, he said that even we witnessed continued wage growth during the coming quarters at a 2.5% rate, it would only tell us that there is an extremely gradual and slow nature of wage gains.
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Wage growth may be accelerating during the second quarter to the point of reaching a seven-year high. Some economists doubt this based on prior instances of signals that failed to manifest. The Labor Department will release the report today after the Fed meeting. As shown in the graph below, wages seem to have begun increasing at the beginning of this year.
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Featured image via Lombirdi Letter