The U.S. economy added 250,000 jobs in October as the unemployment rate held at 3.7%, the Labor Department reported on Friday. Wage growth, the key number for investors worried about Fed rate hikes, accelerated more than expected to 3.1%, the fastest since early 2009. The momentum for wage growth virtually locks in another Fed rate hike in December.
XWall Street economists expected 190,000 jobs, 3.7% unemployment and 3% average hourly wage growth.
While there's one more jobs report before the Fed meeting on Dec. 18 and 19, the big wage hike announced by Amazon (AMZN) last month should ensure that wage growth doesn't relapse in the next report.
After the jobs data, the Dow Jones and S&P 500 futures built on mixed reports raising hopes of a U.S.-China trade deal, which offset Apple (AAPL) weakness. But by mid-morning trading in the stock market today, the Dow turned down 0.1% and the S&P 500 0.3%, while the Nasdaq fell 1% in reaction to Apple earnings and its controversial iPhone announcement. The 10-year Treasury yield, which perked up to 3.17% ahead of the data, ticked up to 3.18%.
The economy added 32,000 manufacturing jobs, even as the sector deals with uncertainty and higher prices stemming from Trump tariffs and a possible escalation of the China trade war.
Amazon Wage Hike Kicked In Nov. 1
On Oct. 2, Amazon embraced a $15 minimum wage, responding to political pressure. Then, facing pressure from blowback from moderate-earning employees, Amazon bumped up pay for those making close to $15. Wage hikes were set to take effect on Nov. 1.
The acceleration in wage growth will keep pressure for more Fed rate hikes. The Fed generally subscribes to the theory that falling unemployment leads to faster wage growth, which feeds through to higher inflation.
While October's 250,000 payroll gain may have partly reflected a rebound from hurricane-related weakness in September, payroll gains have averaged a robust 218,000 per month over the past three months.
Ahead of the data, financial markets were pricing in 74% odds of a December rate hike. That rose to 77.5% after the data.
Restaurants, Retailers, Microsoft Increase Pay
This week's earnings reports offered more evidence that wage pressures are finally bubbling up. Texas Roadhouse (TXRH) reporting wage inflation of 5.3%. President Scott Colosi noted on an earnings call that "the competition for employees and wage rate pressure is more intense than they (managing partners) can remember and it seems likely to continue in 2019."
Other evidence of broad wage pressures emerging in recent months included Microsoft (MSFT) reportedly handing out six-figure bonuses amid competition over cloud-computing employees. Costco (COST) hiked its starting pay by $1 an hour in June. Cheesecake Factory (CAKE) has said its wage growth has jumped to a range of 6% to 7% vs. prior expectations of 5%. Walt Disney (DIS) theme park workers in Florida recently approved a contract that will hike their starting wage by 50% to $15 over three years.
One of the concerns behind recent stock market weakness is that the Fed will go too far in hiking rates amid slowing global economic growth, an escalating trade conflict with China and the fading of fiscal stimulus from tax cuts in the U.S. The big question is whether the wage growth will keep the economy powering forward or whether employers facing margin pressures will cut back on hiring given higher rate outlook, trade uncertainties, softer global growth, strong dollar pressures on emerging markets, late-cycle worries and, potentially, financial market weakness.
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The post Wage Growth Hits 3.1%, Cinching Fed Rate Hike In December appeared first on Investor's Business Daily.
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