September 4, 2020
We had another good jobs number this morning.
More than 3 million people that were on temporary layoff have returned to work. The net number of jobs lost has now been halved, bringing the unemployment rate down to 8.4%.
And people are working longer hours (average weekly hours worked are up, higher than expected) and they are working for a higher wage (wages came in hotter than expected).
As you can see in the chart below, wages are up 4.7% year-over-year and, importantly, sustaining as the job market improves.
This is three consecutive months reflecting year-over-year wage growth in the high 4% area.
This reflects demand for labor that's competing with a government paycheck. You have to pay them more to them back to work. And it reflects raises and bonuses that were given to essential employees at the depths of the health crisis. Not surprisingly, those pay increases are proving to be "sticky."
We've talked about this since the Fed went all-in back in March. We're getting a reset of asset prices. We're getting a reset of wages.
The Economic Policy Institute made the case, prior to the health crisis, that an annual 3.5%-4% nominal wage growth is necessary for people "to reap the benefits of economic growth." The average for nominal wage growth from the Lehman crisis through early this year was just 2.4%. So, with year-over-year average hourly pay now sustaining over 4%, wage growth is finally here.
And with this jobs report, we should expect the projections on Q3 growth to be dialed UP — which have already been projecting growth between 20 and 30 percent annualized (that's against an actual Q2 annualized contraction of 32.9%).
Now, if you agree that we're beginning to see an unwinding of the "stay-at-home forever" stocks, and that money will be moved into "return to normal" stocks, the equal weighted S&P 500 index is not a bad place to express that — as the top five stocks in the S&P 500 market cap weighted index (the widely followed benchmark) now represents nearly 30% of the value of the index. That's all big tech. The biggest equal-weighted S&P 500 ETF is symbol RSP.
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