Wages Are Going Up In America!

What's going on here?

There weren’t as many jobs created in the US in December as in previous months, but wage growth (i.e. the increase in how much people get paid) hit its highest level in seven years!

What does this mean?

Employment data is important because the consumer is such a large part of the economy (consumer spending makes up two-thirds of the US economy). Job creation is both an indication of the current health of the economy and a predictor of how it will improve in the near-term (e.g. people getting jobs in December are more likely to spend money in January, February, etc.).

Challenges certainly remain (including the relatively large number of part-time workers who would rather be working full-time), but improving wage growth is a suggestion that the job market is tightening, e.g. companies have to pay more in order to attract the workers they’d like to hire.

Why should I care?

For the markets: Higher wages point to higher inflation – which can have a big impact on investments.

If people get paid more money, they can afford to spend more – which means it’s easier for the purveyors of goods and services to raise their prices and, therefore, inflation tends to increase. As that higher inflation becomes apparent in the wider economy (as it appears to be doing at the moment), it has an impact on the value of investments, most notably bonds (which typically do poorly when inflation goes up; click here for a brief summary of inflation’s effect on bonds and stocks).

For you personally: Wages are going up, but remember the effect that inflation has on them.

As inflation rises, people should think more about any wage increases in “real” terms, i.e. net of inflation. That’s relevant because it’s quite possible that “real” wages have increased more in 2016 for Americans (and Brits) than they will in 2017 due to the increase in inflation.

This article was published as part of Finimize's daily email. You can sign up for free to receive it in your inbox every day: www.finimize.com.


Share on Twitter Share on Facebook Share on Google Plus Email to a friend
Please comment