We continue to get inquires on our opinion of when interest rates will rise. A post today by Ed Yardeni hits on the key metric to watch in our opinion. Until we see wage pressures building we think rates will remain low for some time.
Wage inflation remains abnormally low although the labor market has clearly tightened. The short-term unemployment rate fell to 3.9% during October, the lowest reading since November 2007. Back then, wage inflation was 3.3%. Today, it is only 2.0%. Fed Chair Janet Yellen has said that she believes that wage inflation is too low. She would prefer to see it rise to 3%-4% before starting to normalize the federal funds rate.
I monitor wages in various key industries and am hard-pressed to see any signs of mounting inflationary pressures. During October, here were the y/y increases for the ones we monitor from highest to lowest: leisure & hospitality (3.6%), information services (3.3), mining & logging (2.9), construction (2.6), professional & business services (2.4), retail trade (2.3), financial activities (2.0), manufacturing (1.9), utilities (1.7), transportation & warehousing (1.2), education & health services (1.1), and wholesale trade (1.1).
Source: Dr. Ed’s Blog