Global markets experienced a massive selloff to start the week after US employment data on Friday night showed average hourly earnings rose by 2.9% in January — the highest level since 2009.
It set off jitters in bond markets as yields spiked — which extended into a global stock rout — because upward pressure on wages is generally seen as a key indicator that inflationary pressures are rising.
But not everyone is convinced that Friday night’s data is a sure sign of a paradigm shift in the US labour market that will alter the outlook for inflation and interest rates.
Earlier this week, Tom Porcelli — the Chief US economist at RBC Capital Markets — said the pickup in wages was skewed towards smaller sectors of the workforce.
“Production and non-supervisory workers who make up around 80% of the employment pie actually witnessed no acceleration in their wages on an annualised basis, and the acceleration in total wages to 2.9% was also helped along by an easier year-ago comparison,” Porcelli said.
And Matthew Klein wrote in the Financial Times that seasonal factors also contributed to the uptick in wage growth.
Klein said the rise in January only offset the recent decline in October and November, and taking a six-month average of the data indicates that US wage pressures actually edged lower compared to the second half of 2016.
In addition, Capital Economics economist Andrew Hunter attributed part of the rise in average hourly earnings to terrible weather in January, which caused a significant 0.5% drop in the number of hours worked as people were forced to stay home.
While workers in salaried positions were still recorded as working a full shift, the weather contributed to a fall in the number of hours worked by lower paid employees in casual positions — which in turn bumped up the total average figure.
So although the January data showed a noticeable rise in average earnings, the above analysis suggests that further evidence is required before markets can be assured of a sustained pickup in wage growth.
Porcelli still expects the US Fed to hike rates four times this year — the higher end of its projected range of 3-4 rate rises.
“But if the fear that has gripped the market since Friday is in part a result of the payroll report, then the fear is overdone,” he said.