Filed Under:  U.S. & World

The ‘good news’ about US wage weakness

Contributed by on January 12, 2015 at 12:55 am

The US has released jobless figures and they show a healthy decline in layoffs and the overall unemployment level. This is great news-especially if you are a member of the Obama administration. However, as I’ve mentioned earlier, there is a fly in the ointment of otherwise positive US employment figures-US wages continue to show weakness. While I am not going to go into the structural and political fallout of a low wage-heavy jobs recovery, there is one particularly tempting interpretation one can walk away with. This conclusion is tempting but also loaded with risk. Which conclusion is this? The Fed might find it unwise to raise interest rates or cut back on easy Fed monetary policies due to the structural weakness a low wage jobs recovery poses.
The logic of easy money cheerleaders
Since US wages continue to be weak, the Fed might have all the cover it needs to hold off on further wind downs on the monetary board’s interest rate policies. Of course, the people most excited about this are market players who would love to see the current rally go on and on. As I have mentioned earlier, we might be in bubble territory. The market might be quickly outgrowing whatever shred of realistic economic justifications for its outsized valuations. Corporate profits aren’t keeping pace with runaway market valuations. Base line economic performance hardly justifies the stock market’s recent exuberance.
Taken all together, the only real reason why the market continues to roar forward when Main Street continues to limp along are easy Fed rates and monetary policies. Any slow down or tightening on these fronts might unleash a serious case of market hiccups which might lead to full blown apoplexy. In light of all this, the fact that US wages remain weak despite payroll increases only serves to keep the current Wall street gravy train going. Just for how long is anyone’s guess.