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No confidence in confidence data?

| Posted by: Paul Donovan | Tags: Paul Donovan Weekly

  • After some months of rising price inflation, it is time to consider wages. Prices and wages are intimately connected. In a developed economy around 70% of what consumers pay for when shopping is domestic wage costs. However if wage costs do not keep pace with price inflation consumer spending power is weakened.
  • The problem is that aggregate wage data tells us less and less about the real world. If an unemployed person finds a job earning a minimum wage their income and spending power will rise – but average hourly earnings fall because there are now more jobs paying below-average wages. This is evident in the US, which has full employment for higher skilled workers and struggles to fill new "above average" paying jobs.
  • The rapid growth of self-employment creates additional problems.  Governments tend to guess how many self-employed workers there are. Dealing with how the self-employed are paid is also a problem; do the self-employed take wages or dividends? 
  • Some statistics, like the US Federal Reserve's Wage Tracker, try to deal with these issues. Most of the headline wage data remains problematic. Investors need to look beyond the headlines if they are to understand what is happening with wages.