MarketWatch is reporting Fed’s big worry gets revised away.
A huge spike in wages and salaries in the second quarter proved to be an illusion, according to the latest data from the Bureau of Labor Statistics and the Bureau of Economic Affairs.
The revisions released Wednesday show that growth in unit labor costs (and therefore in inflationary pressures) has been much lower than assumed. That’s good news on the inflation front.
But they also show that consumers don’t have as much money as everyone thought they did … $100 billion less on an annual basis.
The Fed had been expressing concern that wage pressures were building that would inevitably feed into higher prices. Compensation had surged 12.6% in the first quarter, but that was explained away at the time as a one-time payout of bonuses and stock options to a relatively small group of high-paid executives, many of them on Wall Street.
When the compensation surge repeated in the second quarter, policymakers began to worry that raises were showing up in weekly paychecks as well. That set off some alarm bells at the Fed. A recurring and widespread rise in wages is more inflationary than a one-time bonus given to a selected few.
Compensation up 1.4%, not 7.4%
But the new data show that, instead of growing at a 7.4% annual rate in the second quarter, employee compensation actually grew just 1.4%. The revisions were reported by the BEA on Wednesday as part of its revision to gross domestic product data, based on updated BLS figures from tax records. Third-quarter compensation was also revised slightly lower.
Unit labor costs should see a “very marked downward revision” next week, said Steven Wieting, an economist for Citigroup Global Markets.
Stephen Stanley, chief economist for RBS Greenwich Capital, figures that second-quarter unit labor costs will be revised from 5.4% annualized to negative 0.6%, and third-quarter unit labor cost growth could be cut from 3.8% to 3%. On a year-over-year basis, unit labor costs are probably growing at a 3.6% pace, rather than 5.4%.
“At a stroke, therefore, fears of surging unit labor costs boosting inflation, cited by Mr. Bernanke yesterday, should be greatly reduced,” wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics. “You’d have thunk someone at the BEA could have called him…”
This would be funny if it was not so pathetic. Month after month we listened to the Fed and bulls and treasury bears talk about how great things were and how fast wages were rising and the inflationary impact and yadda yadda yadda.
The Bond Market is wrong.
The Bond market is manipulated.
The Bond market is in a bubble.
All of the above are near universal opinions.
All are also wrong.
All this does heighten is the fact that the box Bernanke is keeps getting tighter and tighter and tighter.
The US dollar is collapsing once again.
Housing starts are still plunging.
Commercial real estate and jobs will both follow housing down.
But speculation in stocks is still running rampant with merger mania, leveraged buyouts, and debt induced stock buybacks.
What is one to do?
Lie is the answer and that is just what all these so called “inflation fighters” at the Fed have been doing. Where were they when the PPI and CPI and housing were soaring? Now all of a sudden they are worried about inflation when energy and home prices have both collapsed. The last lie was exposed today. Real wages are NEGATIVE and that includes the effect of huge bonuses for top end workers. The average Joe is getting crucified.
Please try another lie. That one just got flushed today.
Mike Shedlock / Mish/