Pro Perspectives 7/2/20

July 2, 2020

We came into the week expecting to see the focus turn to the economic data, where the table was set for positive surprises. 

We've seen it.

And we finish the shortened holiday week with more positive surprises this morning — in the big June jobs report  (released today, instead of Friday, due to the holiday). 

Remember, last month, we had a huge positive surprise in the May jobs report.   The market was looking for 8 million in new job losses.  Instead, the report showed 2.5 million of job gains.

This morning, the June report showed job gains of 4.8 million, against expectations of 3 million. 

Again, this is all very good news. We're now 80 days into the reopening of the U.S. economy (which started in Georgia), the employment picture is continuing to reflect success in the policy response (keeping both employees and employers whole through the shutdown). 

What about wages?  This is the spot we've been watching for more evidence that inflation is coming.   

Remember, the Fed got excited last year when wage growth ticked up 3.5%, as a signal of economic health.  That was the hottest wage growth in more than a decade. Contrast that with these numbers …  

For June, average hourly earnings were up 5% compared to last year.  That follows an 8% jump in April and +6.7% in May. 

So, in the wake of historic joblessness, the wage numbers continue to print higher, not lower.  And these wage increases will have to stick, to compete with what the government has offered in unemployment compensation.  Add this to a supply disruption, and trillions of dollar of excess money in the economy, and we have a clear formula for higher prices