Although the U.S. labor market has seen steady declines in unemployment, wage growth has ground to a near standstill, suggesting the U.S. economy is far less stable than commonly believed. The Employment Cost Index edged only 0.2% in the second quarter; the smallest gain since the index was created in 1982. The new data has stoked fears that an economic collapse is around the corner. (Source: Bloomberg, July 31, 2015.)
Analysts were optimistic after the number of job openings spiked to 5.36 million in May 2015. The rise in available positions signaled a strong recovery in near-term employment, pushing up market expectations.
A Bloomberg survey of 57 economists predicted an ECI increase of 0.6%, far above the eventual reality. But after June’s lackluster results, markets are adjusting their near-term outlook.
Specifically, an upbeat message coming out of the Federal Reserve’s meeting on Wednesday had investors convinced that a September rate hike was all but guaranteed. But analysts are estimating that the new data will force a rethink at the central bank.
While benefits for state and local government employees increased slightly from May to June, private industry workers faced a 0.2% cut in benefits last month. (Source: Bureau of Labor Statistics, July 31, 2015.)
Although the Federal Reserve usually makes its monetary policy decision based on inflation concerns, the financial crisis gave birth to a second mandate; the Fed committed to low interest rates until employment had recovered.
Janet Yellen has repeatedly said that improving labor conditions were a key metric in deciding when to raise rates. While private industry workers faced a 0.2% cut in benefits last month, it seems likely that Fed policymakers will push the interest rate hike to December. (Source: Bureau of Labor Statistics, July 31, 2015.)