Wage growth ticks down, causing markets to soar

New data showing a slowdown in wage growth on Friday is leading to a big day on the stock market.

Compensation rose 1.2 percent in the third quarter, a tick down from the 1.3 percent growth in the previous quarter, according to the data released Friday by the Labor Department.

Wage growth at an annualized rate for all workers fell by 0.2 percentage points to 5.1 percent from 5.3 percent between the second and third quarters, while private industry wage growth dropped by an even larger margin between the two quarters, to 5.2 percent from 5.7 percent.

The wage slowdown is a sign employers are paying less after the Federal Reserve’s series of interest rate hikes, and are being treated as good news by markets.

The Dow Jones Industrial Average of stocks gained nearly 600 points in early trading. The S&P 500 increased in value by nearly 1.5 percent, and the technology-heavy Nasdaq increased by 1.6 percent.

“Today’s Employment Cost Index tells us that, after hitting record-highs, wages are finally slowing down across most industries and occupations, posing less of a threat to inflation. Private sector wages and salaries increased 5.2 percent over the year, down from 5.7 percent in the prior quarter—still hot, but cooling,” Julia Pollak, an analyst at Zip Recruiter, said in an email to The Hill.

“Slowing wage growth is the result of a slowdown in worker turnover. As the number of workers quitting their jobs eases, employers are finding it easier to retain workers without large wage increases,” she wrote.

The Federal Reserve has been raising interest rates in order to bring down inflation, which has been over 8 percent for seven months in a row.

The new data could point to a change in Fed policy, which would help markets.

The Fed as of now is widely expected to raise rates further at its next meetings.

Pollak said she believes that the Fed’s interest rate hikes are proving to be effective in bringing down inflation.

However, inflation isn’t simply driven by wages, and the Federal Reserve has said it doesn’t currently observe a wage-price spiral driving inflation.

Rather, inflation is the result of many different factors in the international economy that have complex interactions.

Harvard economist Larry Summers said online Friday morning that “anyone who thinks that inflation is driven by particular factors that will soon reverse themselves” should reconsider their position.

Other data released Friday by the Commerce Department showed that consumer spending rose in September even as inflation wiped out wage gains.

Personal consumption expenditures rose 0.6 percent in September and 0.3 percent when adjusting for inflation, unchanged from August.

Tags Dow Jones federal reserve inflation Larry Summers stock markets
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