Rising wages could steal the show in the October jobs report, according to Yohay Elam, Senior Financial Analyst at fxstreet.com.
“After two disappointing months, the US is expected to report nearly 400,000 jobs gained in October, roughly double September’s 194,000 increase,” said Elam. “With the growing focus on inflation, Average Hourly Earnings will likely steal the show.
“As the impact of the Delta covid variant wanes, lower-paying leisure and hospitality jobs are likely to rise, pushing wages down toward 4% YoY and alleviating concerns about spiraling costs.”
Rising Wages are on Wall Street Radar
Wages are part of the October jobs report scheduled for release on Friday. They have been on the Wall Street radar these days, following the release of a few strong numbers by the U.S. government.
For instance, the employment cost index (wages) gained 1.5% in September, up from 0.9% in August. Labor costs count for a big chunk of “cost of goods,” the second line in the income statement, and therefore, have a significant impact on the bottom line of listed companies.
In the last couple of weeks, several companies have come out stating that rising labor costs and higher material costs have negatively affected their bottom lines, and they expect them to do so for the rest of 2021. (See Insiders’ Hot Stocks on TipRanks)
The negative impact of rising wages isn’t limited to the bottom line of listed companies. It spreads to the entire economy, as these companies try to pass the cost on to consumers by hiking their prices.
That’s already evident in several inflation statistics, like the GDP deflator, which rose at an annual rate of 5.7% in Q3, and the PCE inflation index, which rose at an annual rate of 4.4% in September.
The Riddle of 2 Labor Markets
While traders and investors will keep a close eye on wages, economic analysts will focus on the number of new jobs the nation’s businesses have created.
Unfortunately, new job creation has been anemic in recent months, raising concerns about the sustainability of the economic recovery. In addition, the weak job numbers reported by the government have created a riddle of two labor markets, as these numbers do not match the strong demand for labor reported by the nation’s businesses.
Simply put, the government tells us that businesses do not create enough jobs for the nation’s labor force, while companies tell us that they cannot find enough people to hire.
We’ll know on Friday which side is right.
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