Between jobs and wages | News

Yes, life is not a wish list, but today many market participants are likely carrying very specific wishful thinking in their daily baggage: the hope of a US employment report that will show solid data on job creation as wage pressure is falling. Such a combination of data would certainly help maintain the good mood in the financial markets over the long Pentecost weekend. Equity markets may close for the second consecutive week of gains, the bond market may recoup some of this week’s losses and the euro may increase its modest weekly gains against the US dollar and approach 1.08. All this if the numbers come “as desired”. However, if the data come “as expected”, we may face a marked deterioration of the mood at the end of the week. In addition to the labor market report, we continue to focus on the ISM index for the services sector and the release of the UN food price index.

During this week, we have already pointed to the problem several times, American economic data correctly interpreted in the current environment. The ideal is an economy that maintains cyclical dynamics while wage and price pressures are gradually easing. On the one hand, it would stabilize the corporate earnings outlook, and on the other hand, it would relieve the central bank to tighten its monetary policy to the extent that currently implied forwards in the money market. They point to a key interest rate well above 3% in the middle of next year. However, much of the economic data cannot match this wishful thinking. For example, if key data from the manufacturing sector point to strong activity and a strong order situation, this automatically follows from sustained high inflationary pressures. While weak data on activity is easing some inflation fears, it is also fueling fears of an impending recession.

The analysis becomes clearer if the published data package contains both an activity component and a price component. Today’s monthly employment report for the United States he is the best example of this. The unemployment rate and the increase in the number of jobs give us an idea of ​​the economic dynamics, data on wage developments inform about the prevailing wage pressure. Let’s look at the development of these components from the beginning of the year. FROM job creation it has been very solid so far with a slight weakening trend. After about 500,000 and 700 thousand new jobs in January and February, we recorded an increase of 428 thousand. in March and April respectively. In May, a further slowdown to approx. 320,000 is expected. Parallel to this it went unemployment rate from 4.0% to 3.8% and finally 3.6%. Today, a rate of 3.5% is expected, which would bring us exactly to the level that prevailed immediately before the outbreak of the pandemic.

So far this year, the wage trend is much less uniform, which was compared with the Employment Report in the context average hourly wages shown: + 0.6% vs. Vm. In January + 0.1% in February, + 0.5% in March and + 0.3% in April. Basically, it can be said: any value above 0.3% increases inflationary pressure, any value below it suppresses it, a 0.3% spot landing should generally be assessed as neutral due to price risk. And it is this figure that is probably the problem today: consensus predicts that the median wage increase per hour will be 0.4%, although individual expectations are heading towards a slightly weaker wage growth (average expectation + 0.37%).

To sum up, the consensus expected in today’s wages report is to add 320k. jobs and wage growth of 0.4% year on year. Vm. Such a data package would probably put pressure on yields growth, which could weigh on the stock markets. Wishful thinking is an increase in employment slightly above expectations and an increase in wages below expectations. Our projected value of PLN 325 thousand and + 0.3% would be largely in line with this idea …

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Article In the area of ​​tensions between jobs and wages, he first appeared on the blog onemarkets (HypoVereinsbank – UniCredit Bank AG).

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