Wage growth hasn’t taken off as hoped but we believe the longer-term rising trend is still in place.
The US unemployment rate fell to 4.4% in April, further below the Fed’s estimate of 4.7% as the threshold for a pickup in inflation.
Average hourly earnings slid to 2.5%, below the consensus expectation for 2.7%.
However, the quarterly Employment Cost Index (ECI) was up 2.4% on the year, from 2.2% in December, and the wages and salaries component rose 2.5%.
Euro area unemployment is gradually declining, but the region still has a lot of labor market slack.
Unemployment across the Eurozone has fallen from a peak of 12% in 2013 to 9.5% in March. These data include a 3.9% rate in Germany, and 18.2% in Spain.
Youth unemployment was 19.6% in the first quarter of 2017, including 41% in Spain.
Quarterly wage growth in the euro area was just 1.6% at the end of 2016.
Unemployment in Japan is just 2.8%, but hidden slack and structural shifts are limiting wage growth to around 1%.
Japan’s service sector businesses stay open long hours and overutilize workers, who accept lower wages in return for job security.
Much of the rise in employment is in part-time jobs and low-pay service sectors.
The pool of labor has increased since Prime Minister Shinzo Abe came to power, with more participation from women and elderly workers.
Rising inflation is a positive development for China’s highly indebted economy.
Services prices rose 2.9% on the year in April, outpacing the 2.1% increase in core consumer price inflation (CPI).
This stronger pressure in services reflects pricing power, in line with a longer-term trend across emerging markets toward more spending on human services and experiences, such as travel, rather than material goods.
We don’t see much impact on monetary policy, which is focused on regulatory issues for now. But inflation should help devalue China’s debt stock, which recently earned the country a downgrade to A1 by Moody’s Investor Service.