December 2, 2020
Yesterday we talked more about the set-up for inflated economic growth next year, inflated prices and higher wages.
With that, let's talk about tomorrow's jobs report, which will include a read on wages.
First, unemployment is expected to continue the move lower.
Within the jobs report we will get November average hourly earnings (wages).
This is an important number. Remember, this (wage growth) was one of the missing pieces in the decade-long slow economic recovery from the Global Financial Crisis. Despite what looked like a hot jobs recovery, it did not come with wage pressures. That was a reflection of underemployment issues (the barista and gig economy) and a structurally flawed economy (driven by the damage from global trade imbalance). With that backdrop, we got sluggish growth and weak inflation — an unusually weak recovery from a recession.
This time around, in the recovery from the Global Health Crisis, wages will have to reset, higher. The monetary and fiscal response this time was bigger, bolder and with major inflation ramifications (maybe extreme). We're already seeing it in asset prices. And it's early days in the reset of commodities prices. To keep up with higher cost of living, wages will have to go higher.
The good news: We're already seeing it. As you can see in the chart below, thanks to hazard/essential worker pay increases and Federal unemployment subsidies, wages have spiked. But, importantly, as the unemployment rate comes down, people going back to work are commanding higher wages. Wages are sustaining in the 4%+ area (well above the wage growth of the past decade). The expectation from the report tomorrow is for 4.3% yoy wage growth in the month of November.