SEPTEMBER 10, 2018 – NEW JOBS CRUSH EXPECTATIONS AND WAGES TICK UP
The US economy added 201,000 new jobs in August, crushing forecasts for 192,000. The unemployment rate held steady at 3.9 percent, while average hourly wages were up 2.9 percent year-over-year, the fastest pace seen since mid-2009. After the data was released, the US dollar surged, along with 10-year treasuries which rose to 2.904% from 2.877%.
Overall pay seems to be firming as the labor market tightens, which is supporting the strength in economic growth. However, we need to note the pace of wage growth is the same as that of inflation, so real wages are essentially flat. Wages need to rise faster if consumer spending will be driving economic growth going forward.
The Fed is on track to raise rates this month. Analysts expect rising wages and inflation to give the Fed more leeway to pick up the pace of interest rate hikes. The expectation for two rate hikes before the end of the year rose to 72%, as compared to 67% a month ago. Interest rate swaps are still an interesting option to lock in current rates before the Fed acts next week.