Pay Up

Friday’s US personal income and spending data showed headline and core PCE were largely in line in September, but a hot read on the employment cost index is likely to raise eyebrows.

Wages rose 1.5% from the previous quarter, the most ever. And it’s not close (figure below).

The data neatly encapsulates a number of familiar dynamics currently playing havoc with the US labor market, which remains something of a funhouse mirror, characterized by a record disparity between vacancies and hires and any number of other acute distortions.

As a reminder (which regular readers surely don’t need), JOLTS data for August (the most recent report) showed the quits rate reached a new record high.

Although copious editorializing is certainly possible, I’m not sure it’s necessary in this case. Employers are in largely uncharted territory. For the first time in decades, labor has leverage. And with demand still a semblance of robust (“peak growth” narratives notwithstanding), businesses are desperate to hire. That’s a recipe for rising employment costs. And that’s exactly what the Q3 ECI data reflect.

Just pick a number from the report. Any number will work. The figure (below) shows the YoY gain in total comp for private sector workers, for example.

That’s a record. As the BLS wrote, summarizing, “compensation cost increases for the 12-month period ending in September 2021 ranged from 3.2% for management, professional, and related occupations to 6.1% for service occupations.”

In leisure and hospitality, the gain was almost 7%. It was 8% in accommodations and food service.

This will feed the inflation narrative and could very well put the belly of the curve in jeopardy as concerns over the dreaded “spiral” permeate policymaker deliberations. “It speaks to the risk that inflation becomes self-perpetuating,” BMO’s US rates team said Friday.

From a market perspective, it could exacerbate margin jitters which, in turn, may bolster the “peak profits” talking point. Thankfully, at least two Democrats aren’t on board with squeezing America’s corporate “citizens” too hard.


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5 thoughts on “Pay Up

  1. The bond vigilantes sitting down in Palm Beach and Puerto Rico are enraged by this. They want the Fed to put a quick end to this nonsense. After all, there’s nothing like choking the economy to drive down the demand for labor!

  2. Not being facetious I notice a shortage of Fries in that package on the artwork for this post. Point here is , Transitory inflation is not in the cards . I watch not amused as corporate America fights back gauging back every penny , for example removing .30 oz. from their latest batch of a name brand Soap which used to come in 5 oz bars just a few years ago. Toilet tissue , be sure to use double quantities because .. (you guess ).. Small retailers are also in the act and none of this has a reverse gear. The Fed well if they let the inflation run longer than they should will do the same , which is monetize more debt . Really easy to see where this goes but still not sure what might be the game plan..

  3. Sung to You were gone

    *We got a 5.9% COLA, 5600 bucks a year
    The Medicare premiums went up quite a bit
    But then LTC premiums skyrocketed bigly
    Homeowner’s insurance and taxes went up too

    Where, where, are you tonight?
    Why did you leave me here with no dough?
    I searched the world over,
    And thought I found more bucks
    We got a COLA and
    Phht! it was gone.*

  4. Are Manchin and Sinema Democrats? Cannot decide whether they are speaking for a handfull of moderates or whether they might some day prefer to become Independents, They must feel a personal cost to their Democrats to be holding up the Biden agenda, but if they are of this conviction, maybe they would be better off leaving the party. They are certainly not Republicans, particuarly Sinema, but even if you look at Manchin voting record, it does not scream GOP.

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