Cycle-High Wage Growth Still Manageable

September’s jobs report (released today) showed nonfarm payrolls grew 134,000 last month, while the unemployment rate fell to a 48-year low. Although the September headline jobs number missed consensus forecasts by about 50,000 jobs (partly Hurricane Florence related), upward revisions to the prior two months totaling 87,000 more than offset the miss. However, given the latest move higher in interest rates, investors are focused more on average hourly earnings to gauge whether wage pressures in the U.S. economy will force the Federal Reserve (Fed) to quicken its pace of monetary policy tightening.

Average hourly earnings grew 2.8% year-over-year last month, in line with forecasts and down from 2.9% in August, though at the high end of the range for this economic cycle. Here, we prefer to look at wage growth with some historical context. As shown in the LPL Chart of the Day, labor costs are significantly below where they were in the previous tightening cycle, leading us to believe that inflationary pressures have an ample cushion before they reach alarming levels. Nevertheless, markets may be sensitive to signs of growing inflation, especially with longer-term yields and stocks near multi-year highs.

Wage Growth is Manageable Compared to Last Tightening Cycle

“Wage pressures remain at manageable levels,” said LPL Research Chief Investment Strategist John Lynch. “Since wages can represent up to 70% of total business costs, it’s difficult to have a sustainable pricing threat without much participation from wages.”

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not bank/credit union obligations and are not endorsed, recommended or guaranteed by any bank/credit union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.

Member FINRA/SIPC

For Public Use — Tracking # 1- 778792 (Exp. 10/19)