What's going on?
US personal income (i.e. the money Americans make from their jobs and from their investments) climbed last month at the fastest rate since April. Looking sharp, America!
What does this mean?
Personal income rose 0.6% from September to October, according to data from the Commerce Department, even though Wall Street economists had only forecasted a 0.4% increase. As more jobs are created, wages are pushed up for the simple reason that demand for workers has increased (and greater demand leads to a higher price). The higher wages lead to more money in people’s pockets and, in turn, more economic activity as that money is spent.
Why should I care?
For markets: “Good” inflation isn’t (yet) accelerating.
Wednesday’s data showed that prices rose at the fastest pace in two years. However, once the prices of volatile goods, like energy and food, are stripped out, “core” inflation did not increase from recent months. That’s important because it’s this underlying inflation rate that economists are most concerned with – it shows what’s really going on with the economy. As wages increase, this rate should begin to accelerate – it’s just not happening yet. And higher “core” inflation makes it more likely the US Federal Reserve (“the Fed”) will raise its target interest rate – something that’s bad for bonds and, possibly, for stocks too (for more on its potential impact, click here).
The bigger picture: The US economy is picking up steam.
Donald Trump is inheriting an economy where unemployment is at the lowest level since the financial crisis, while wage growth is at its highest. Data out on Tuesday showed that in the third quarter the US economy grew at its fastest rate in two years. Investors seem optimistic that Trump’s policies, like infrastructure spending, could help the economy grow even faster next year. Seems like things are pretty rosy for the economy – at least compared to the post-financial crisis norm.