Slow wage growth to keep Fed on prudent normalisation track

But latest employment report shows the US economy remains in fine fettle.

The November employment report revealed another ‘Goldilocks’ set of conditions for investors: employment growth remained firm, especially in cyclical sectors like manufacturing and construction. At the same time, wage growth stayed soft – which means the Federal Reserve is unlikely to shift its current prudent communication on interest-rate hikes (although it is still very likely to hike 25bps on 13 December).

Non-farm employment rose 228,000 in November, from a downwardly revised 244,000 in October, leaving the three-month average at a healthy 170,000/month. The unemployment rate remained at 4.1%. Meanwhile, average hourly earnings were up 0.2% month on month , pushing up the year-on-year (y-o-y) reading to 2.5% (but still below the one-year average of 2.6%). Our view remains that wage growth should remain under control in the coming months, due mostly to structural reasons like technological change, robotisation and globalisation, which are having a greater effect than the increasing tightness of labour market conditions. Wage growth in retail was only 1.1% y-o-y, for instance.

The picture is rosy at the macro level, with data neither too hot nor too cold (hence our ‘Goldilocks’ characterisation). There was some seeming respite in the ongoing crisis in the retail sector, as retail jobs grew a solid 19,000 in November. This also could be a good omen for private consumption in the holiday shopping season.

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