Friday’s labor data eases recession fears, but it isn’t a silver bullet. Cooling job growth will likely reinforce the Fed’s “steady hand” on rates. However, the inflation dragon has not yet been slayed – wage growth is still something to watch. Wage growth is important to consider because it directly impacts services inflation. To maintain a 2% inflation rate, the Fed is seeking a 3% wage growth rate. As the attached WSJ chart shows, wage growth has slowed relative to earlier in 2023. However, November’s data could be a minor setback. While annual wage growth has slowed to under 4%, November’s “modest acceleration” has contributed to an increase in the three-month annualized wage growth rate from 3% to 3.4%. Keeping an eye on subsequent months will be important.
Sources: The Wall Street Journal, Barron's, Reuters
Reade Ben is a policy analyst at the Manhattan Institute.
Interested in real economic insights? Want to stay ahead of the competition? Sign up for our weekly newsletter here.
Photo by Darren415/iStock