According to a new report by Macquarie, last week’s employment report is grounds for pushing back the firm’s expectations for the first Federal Reserve interest rate hike. However, Macquarie’s decision has nothing to do with the actual employment numbers. In fact, according to the report, the decision is centered around another number in the report: wage growth.
The Numbers
Average hourly earnings growth inched up just 0.1 percent month-over-month (M/M). This number fell well short of expectations.
As if a low April number weren’t bad enough, the report also included a downward revision of March’s earnings growth numbers as well. Overall, average hourly earnings growth now stands at 2.2 percent year-over-year (Y/Y).
The Biggest Disappointment
Macquarie’s preferred number for gauging wage growth is average hourly earnings of private production and non-supervisory workers. This number also came in at just +0.1 percent M/M in April and remains below 2.0 percent Y/Y.
In the past two economic expansions in the 1990s and 2000s, once the unemployment rate fell below 6.0 percent, wage growth began accelerating six to nine months later. It has now been more than seven months since the unemployment rate dropped below the 6.0 percent threshold back in September, but wages have shown no signs of life.
Rate Hike Delay
Based on observations from the past two expansions, analysts expect that wage growth acceleration is coming soon. However, the April numbers were bad enough for Macquarie to shift its base-case rate hike prediction from June to September.
Analysts now put the likelihood of a June rate hike at 15 percent, a July rate hike at 20 percent, a September rate hike at 50 percent and a rate hike at a later date at 15 percent.
Read this article and all my other articles for free on Benzinga by clicking here
Want to learn more about the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!
