Wall Street expects the April jobs report to show the economy added 191,000 new jobs last month as the unemployment rate fell to 4% for the first time since 2000. Yet for stock market investors on edge over Fed rate-hike plans, wage growth is the key number. There's a good chance it will surprise on the upside.
XEconomists expect average hourly wage growth of 2.7% from a year earlier, same as in March. Yet a host of large companies including CVS Health (CVS), Starbucks (SBUX) and Target (TGT) have announced wage hikes rolling out this spring that may start to show up in Friday's report.
This year is beginning to look lot like 2016, when wage gains accelerated into summer after Walmart (WMT) hiked its base wage to $10 an hour. Then Target, Costco (COST) and others followed. Walmart's minimum wage hike to $11 an hour has contributed to the same kind of dynamic early this year. Target subsequently hiked its base pay to $12 an hour and CVS to $11 an hour.
And as those companies hike wages, their competitors are being pressured to do the same. In March, Kroger (KR), Dollar Tree (DLTR) and Ross Stores (ROST) all said they're raising wages for employees, and their stocks sold off amid worries about profit margins.
What's different from 2016 is that now the jobless rate is nearly a percentage point lower, meaning more competition for workers. On top of that, numerous companies announced wage hikes in the wake of tax reform.
The likely combination of low and falling unemployment with accelerating wage gains would fit perfectly with the Phillips curve theory that has long guided Federal Reserve policy. For investors, the key point is that most Fed policymakers still seem confident that inflation pressures won't lag too far behind wage pressures, as businesses pass along a portion of their higher wage bills.
To some extent, it's already happening as the Fed's favored gauge of core inflation hit 1.9% in March. Meanwhile, Wall Street has bumped up odds for a fourth rate hike this year to more than 40%.
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The post April Jobs Report: Brace For Faster Wage Growth, More Fed Rate-Hike Fears appeared first on Investor's Business Daily.
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