Tags: wages | salaries | rise | economy | pay

Rising Wages May Spark Inflation Surge

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Wednesday, 31 October 2018 10:08 AM Current | Bio | Archive

US Wages and Salaries Continue to Rise

All this is very important for investors.

Compensation costs for civilian workers increased 0.8 percent, seasonally adjusted, for the 3-month period ending in September 2018, the U.S. Bureau of Labor Statistics reported.

Wages and salaries (which make up about 70 percent of compensation costs) increased 0.9 percent and benefit costs (which make up the remaining 30 percent of compensation) increased 0.4 percent from June 2018.

The U.S. economy still faces a tricky moment, with inflation near the Fed’s 2 percent target, but the Employment Cost Index foreshadows higher inflation is on its way, with unemployment remaining low and economic growth remaining strong.

Prices could climb if pressures from labor shortages and tariffs intensify or hold if those pressures are offset by factors such as a continuously stronger dollar.

China’s Economy Decelerates Further

Overnight, the Chinese National Bureau of Statistics or NBS published its manufacturing Purchasing Managers' Index (PMI) that fell to 50.2 in October or just above the 50-point mark that separates growth from contraction, and down from 50.8 in September. Market consensus was 50.6. It was the weakest growth in manufacturing activity since the contraction in July 2016, as output rose the least in eight months (52 vs 53 in September), new orders growth slowed (50.8 vs 52), and new export orders shrank for the fifth straight month at the fastest pace in at least a year (46.9 vs 48).

Also, its non-manufacturing Purchasing Managers’ Index (PMI) fell to 53.9 in October, down from 54.9 in September.

The composite PMI, which covers both manufacturing and services activity, slipped to 53.1 in October, from 54.1 in September.

China’s government is attempting to support growth while also striving to slow the buildup of debt.

There is no doubt that Chinese domestic economic growth is decelerating. The stock market is down, and while exports are still strong, for now at least, the export orders gauge signals the economy will see more downward pressure in the months to come as higher U.S. tariffs kick in.

Earlier today in Shanghai, the Chinese currency, the yuan (CNY) weakened a bit further from yesterday’s weakening when the yuan (CNY) slid to its lowest level against the dollar in more than a decade following a report that President Trump plans to expand tariffs to cover the “full” range of imports from China if he is unable to extract concessions from President Xi Jinping during a Group of 20 summit of world leaders in Argentina at the end of November.

Today’s weakest point was 6.98 CNY to the dollar, coming hereby very close to the “magic” 7 CNY per dollar.

Euro area GDP Growth Slows Significantly

Yesterday, we got negative surprising news out of the Euro area when third quarter GDP unexpectedly grew at its weakest pace in more than four years at 0.2 percent, down from 0.4 percent growth in the previous quarter, with Italy grinding practically to a halt.

Italian GDP was unchanged between July and September, following a 0.2 percent rise in the second quarter, and was up just 0.8 percent on an annual basis, the Italian national statistics bureau ISTAT reported.

The flat quarterly reading was the weakest since the fourth quarter of 2014 and continues a steady slowdown in Italian growth over the last 18 months.

Yields on Italian government bonds rose (10-year currently at 3.41 percent) after the GDP data and the euro fell (currently at about $1.13 per euro.)

The Euro area’s lowly position is in stark contrast to 2017, when an economic boom saw the euro area top the charts for positive surprises.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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The U.S. economy still faces a tricky moment, with inflation near the Fed’s 2 percent target, but the Employment Cost Index foreshadows higher inflation is on its way, with unemployment remaining low and economic growth remaining strong.
wages, salaries, rise, economy, pay
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2018-08-31
Wednesday, 31 October 2018 10:08 AM
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