While there’s much debate as to whether it was the cause, few will disagree that the latest bout of financial market volatility kicked off following the release of the latest US non-farm payrolls report last Friday.
The lift in average hourly earnings (AHE), accelerating to an annual rate of 2.9%, certainly caught the eye of investors, sending US bond yields to fresh multi-year highs and stocks skidding lower.
That move has obviously extended in recent sessions, culminating in both the Dow Jones Industrial Average and S&P 500 suffering corrections of more than 10% for the first time since early 2016.
But what if wage growth really isn’t accelerating to the degree as the January payrolls report would suggest?
This chart from Westpac Bank provides some food for thought.
It shows annual growth in hourly earnings versus workers reporting that they were unable to work due to lousy weather.
As Westpac points out, the spike in AWE in January, seeing it lift to the fastest pace since the global financial crisis, corresponded with a significant amount of workers not being able to attend work.
That repeats the pattern seen in prior period of inclement weather, as indicated by the arrows.
While that doesn’t mean that the latest bout of financial market volatility is misplaced — it is what it is — it does raise questions as to whether the concern that faster US wage growth will lead to higher inflation and more rate hikes from the Fed is justified.
Could the lift in wages just be a weather-related anomaly?
We won’t know the answer until the February payrolls report is released in early March, but there’s clearly a risk that the cyclone bomb that hit the US east coast in January may also be about to drop a cyclone bomb on the belief that wage growth is accelerating as quickly as many believe.