Watch Wage Data for Fed Action

By ,   October 31, 2014

Avatar of

It seems the Federal Reserve is finally starting to recognize that the decline in the employment participation rate could be more structural in nature.  The rhetoric this week displayed a bit more of a hawkish tone suggesting that the labor market may not have as much slack as previously thought.  Unemployment claims have been back to pre-recession levels for a while and the unemployment rate has plummeted faster than anticipated.  

The metric going forward to watch is wage growth.  Even though the economy is generating consistently more than 200,000 jobs per month, wages have remained below average since 2008.  The rumors of a “skill gap” among workers seems to be starting to manifest in the actual data.  The Federal Reserve has been criticized by some for being behind the curve in raising rates to avoid inflation.  If unemployment continues to fall, we could see acceleration in wage growth as more companies compete for talent, which may influence the Fed to start raising rates sooner than the market is currently expecting.   

 

Source: Thomson Reuters Eikon