Living (With) Wage(s)
A key gauge of compensation watched closely by Jerome Powell and the Fed rose less than expected in the fourth quarter, according to crucial data released on the eve of the FOMC's February policy decision.
The Employment Cost Index increased 1% in Q4, near the low-end of the range. Guesses from more than 50 economists were as low as 0.9% and as high as 1.5%. Had the print met the highest estimate, stocks would've surely plunged.
The cooler-than-anticipated reading still counted as elevated in
“These prints must cool down to make the Fed feel more comfortable about inflation.”
The thing about the market for anything is that all transactions have two sides. One of them is generally a loser and one is a winner. If grain prices rise, farmers are happy but General Mills, consumers of products containing grains, etc., not so much. When wages don’t rise, those with labor inputs are happy, workers are not. Moreover, if worker pay stagnates or falls in real terms, the ability to consume is reduced and economic growth can slow. We can’t/don’t all win here. One of the first things I was taught in Econ 101 was that there are two versions of GDP (GNP back then), the income flows and the value of final goods and services. The two sides have to balance. (Economists, for some reason, don’t seem to care so much about profits, you know making money and all that.) Anyway, when one keeps wage rates down and pushes productivity up (more output, same workers) it causes harm to the consumption side because consumer incomes aren’t rising. Companies like this situation because costs stay steady or fall. To my knowledge, there are only few markets where both sides can benefit in a transaction, the markets for some financial assets. Commodity and futures markets are mostly a zero-sum game so there is always a loser. So the Fed wants to screw us by pushing most on those who can least absorb the pain. What they are doing right now is generally making me more money. But for folks in the services sector, the average annual pay in 2020 was $27,800. Take out the takeaways and that’s about $2k a month. Put together a budget for that (not $15 an hour, btw). Bank tellers, basic caregivers in nursing homes, house keepers in hotels and hospitals, wait staff, clerks … That’s who we screw over to keep costs down. The lowest paid group in our society are hospitality workers. The people who provided the basic care for my wife in her last five years started at $10/hr and most weren’t around for as long as six months because they weren’t getting a living wage. To say the Fed’s job is tricky is and understatement but there will be losers and they won’t be people who can afford it.
The continued theme seems to be the Fed can’t manage everything but they are the only ones trying to manage anything.
Congress has become performative politics “for the gram”, there is little appetite to do anything of value from enough people there to matter.
The Judiciary is hell bent on living out its Handmade’s Tale fever dream and cares very little about what the law actually says or has been interpreted to say over the past 200 years.
The White House is hamstrung by the other two branches of government when it isn’t busy focusing on isolationist policies and pushing us closer to Nazism.
There is lonely Jerome Powell trying to figure out how to manage the entire economy, which somehow falls squarely in his lap, even though he only has the power to control monetary policy.
Imagine how bad things would be if Powell simply threw up his hands and said it’s not his problem to solve?