Market Update - August 5, 2014

Last Friday, the Bureau of Labor Statistics reported that nonfarm payrolls grew by 209,000 in July, the sixth-consecutive increase north of 200,000. That hasn’t happened since 1997 (BLS).


Included in the release is what’s called average hourly earnings; it was unchanged in July and is up a muted 2.0% versus one year ago.



As Figure 1 indicates, wage growth has been weak, and the rate is showing no signs of accelerating. If that’s the case, we still have plenty of slack in the labor force, and the Fed can be patient with its low-rate policy.


On the other hand, a more comprehensive gauge of labor costs released last Thursday may be suggesting otherwise. The Employment Cost Index, which takes into account benefits, jumped 0.7% in Q2, its biggest one-quarter rise since 2008 – see Figure 2.



Now it’s possible that Q2’s more robust increase is simply payback from Q1’s anemic 0.3% rise, but worries about increases in employee compensation leads us to the weakness in stocks last week.