Tags: higher | wages | rate | hikes | market | volatility

Higher Wages to Force More Rate Hikes, Stoking Market Volatility

Higher Wages to Force More Rate Hikes, Stoking Market Volatility
(Paulus Rusyanto/Dreamstime)

By
Tuesday, 06 February 2018 03:23 PM Current | Bio | Archive

  • INDICATOR: December Trade Deficit and Job Openings
  • KEY DATA: Deficit: $53.1 billion ($2.7 bil. wider); Exports: up $3.5 bil.; Imports: up $6.2 bil./ Openings: down 167,000; Hires: down 5,000; Quits: up 98,000
  • IN A NUTSHELL: “The stronger economy is sucking in goods from all over the world and that means a lot of dollars are leaving the country.”

WHAT IT MEANS: Maybe someday we will be producing more goods domestically, but until that day, when the economy grows, a lot of the demand will be met by foreign companies. That was the case in December, as imports expanded a lot more than exports. The result, not surprisingly, was a further widening in the trade deficit. U.S. households and businesses bought a lot more of everything except oil. The resurgence in the domestic energy sector is displacing foreign production. The demand for consumer goods, especially cell phones and drugs, vehicles and food was up sharply. Businesses were in the market for a lot more machinery, indicating that capital investment is picking up. As for our exports, the improving conditions around the world allowed our sales of food, machinery and industrial products to rise. However, the vehicle and consumer goods sectors didn’t join in the party.

On the labor front, job openings moderated in December, though they remain at a very high level. Firms may be trying to balance their needs with their ability to fill those needs so they might be holding back posting positions where they don’t think workers are available. The real story in the report, though, was a jump in in the number of people leaving their positions. I had thought that by now, the fear of moving to another company would have faded. It really hadn’t very much, though maybe it is finally happening.

MARKETS AND FED POLICY IMPLICATIONS: The wild ride we have seen in the last few trading days in the equity markets may fade, but the large movements are warnings that the days of limited volatility are probably over. Let’s face it, the market has essentially moved straight up for most of the recovery. Stock prices have soared over the past few years, while at the same time, the economy has grown moderately, at best. The disconnect between economic growth and equity values had to be addressed in some manner and it still needs to be evaluated. But more importantly, if we have finally entered a period of volatility, which seems likely, the Fed, in particular new Chair Powell, has to decide whether the monetary policymakers should target inflation and/or equity prices. I am already hearing the mantra that the Fed may have to back off or risk spooking the markets. Well, the Fed’s job is not to support the stock markets, especially if the exuberance may have been somewhat (or a lot) irrational. We shall see what gets decided, but if the tax cuts actually work and growth does approach 3%, as many of us expect, inflation pressures will be the key to Fed policy. A further resurgence in wages is likely to be met by rate hikes, no matter what investors want, and that could mean a lot more volatile days ahead.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
JoelNaroff
A further resurgence in wages is likely to be met by rate hikes, no matter what investors want, and that could mean a lot more volatile days ahead.
higher, wages, rate, hikes, market, volatility
548
2018-23-06
Tuesday, 06 February 2018 03:23 PM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved