Pay Raises Ahead?


Nearly six years after the official end of the recession, something exciting is about to happen: Americans are likely to FINALLY get a raise! Government data (the Employment Cost Index or “ECI”) showed that compensation in the first quarter increased by 2.6 percent from a year ago, up from the 2.2 percent gain in the previous quarter and the fastest pace since Q4 2008. The private sector did even better, seeing an annual growth rate of 2.8 percent, the best year over year pay gain since Q3 2008. A year ago, the rise in private sector wages and salaries was only 1.7 percent, so while growth rates are still modest by historical standards, this report demonstrates good progress and is a sign of potentially more robust increases later this year. Joel Naroff of Naroff Economic Advisors predicts, “Within a quarter or two at the most, we should be back above 3 percent,” which is just about average for an expansion.

How can we square this upbeat information with the monthly jobs report category of “average hourly earnings”, which showed annual growth of just 2.1 percent in Q1 (and for the entire recovery)? Greg Ip of the Wall Street Journal notes, “The divergence may be explained by the fact that the quarterly figures include commissions and other performance-based pay, which rose sharply in the first quarter, and may not be repeated.” That may be true, but it should also be noted that the Fed has traditionally put more weight on the employment cost index, since it tracks the same jobs over time and adjusts for the changing mix of jobs in the economy. If Janet thinks ECI is the better gauge to use, then we should too.

Other indicators have enhanced the case for future pay raises: weekly jobless claims are hovering at 15-year lows; ISM Service sector indicators are strengthening; and a variety of big companies, including McDonalds, Wal-Mart, Target, Cheesecake Factory and Aetna, have all announced an increase in pay to lower wage workers.

We’ll learn more about the state of the nation’s labor market this week, when the government releases the April employment update. Economists are hopeful that the weak March report, where just 126,000 positions were created, was a one-off event, rather than a more worrisome trend that is gripping the nation. The consensus estimate is that 220,000 new jobs were created and for the unemployment rate to edge down by a tenth of a percent to 5.4 percent.

Happy Anniversary, Greek Bailout! Time sure does fly, when you bail out an indebted nation. It has been FIVE YEARS since Europe and the International Monetary Fund first agreed to bail out Greece (May 2, 2010). Eurozone officials are busy trying to hammer out yet another debt restructuring with Greece, which once again faces a summer default without a deal.

MARKETS: That thud you heard this week was the sound of plummeting social media stocks. Twitter, LinkedIn and Yelp all tumbled by more than 20 percent on the week, after weaker than expected earnings reports and dim prospects for the rest of the year. Social media stocks have been on a massive run and even with these three misfires, the social media index (SOCL) is up over 10 percent this year, 3.5 percent better than the NASDAQ Composite.

  • DJIA: 18,024, down 0.3% on week, up 1.1% YTD
  • S&P 500: 2108, down 0.4% on week, up 2.4% YTD
  • NASDAQ: 5,005 down 1.7% on week, up 5.7% YTD
  • Russell 2000: 1267, down 3.1% on week, up 2% YTD
  • 10-Year Treasury yield: 2.12% (from 1.92% a week ago)
  • June Crude: $59.15, up 3.5% on week (up 25% in April, biggest monthly gain since 5/09)
  • June Gold: $1174.50, down 0.03% on week
  • AAA Nat'l avg for gallon of regular Gas: $2.60 (from $2.51 week ago, $3.69 a year ago)


Mon 5/4:

Cablevision, Comcast

10:00 Factory Orders

Tues 5/5:


8:30 International Trade

10:00 ISM Non-Manufacturing Index

Weds 5/6:

MetLife, Prudential, Whole Foods

8:15 ADP Private Sector Jobs

8:30 Productivity

Thurs 5/7: UK Election


3:00 Consumer Credit

Fri 5/8:


8:30 April Employment Report