Inflation worries caused by a single economic report have led to increasing concern that the economy may be overheated. A rapidly expanding economy could lead the Fed to increase interest rates at a faster than expected pace.
The January Unemployment Report from the Bureau of Labor Statistics showed an increase in average hourly wages of 9 cents, pushing the annual increase to 2.9% from 2.6%. A couple points of caution on this report are needed. First, it is possible that some or even most of the wage increase is due to 18 states raising their minimum wage as of January 1st. If that is the case, this will likely be a one-time bump in average wages rather than a sustained trend higher. Second, there could be a temporary weather impact on this report (which won’t repeat once the weather gets warmer). Some workers were not able to work full-time because they couldn’t make it to work on certain bad weather days. If these workers were lower paid workers, that would push up the aggregate average hourly wage for January because the lower paid workers worked fewer hours.
We’ll need to wait for the February, March, and April reports to see if the increase in average hourly wages is a trend or if the January report is just a blip on the radar.[+] Read More