Wages taking off in low unemployment cities

January 04, 2018

Keywords: Asset Management

For all intents and purposes, America's economic engine is locked in gear, as numerous indicators - such as gross domestic product, stock valuations, employment and consumer sentiment - are charged and getting stronger. Wages, on the other hand, haven't kept up the pace, stuck in neutral or occasionally budging, but barely. 

However, based on a newly released report, workers in cities with extraordinarily low levels of unemployment are starting to see the fruits of their labors, in the form of increased compensation.

According to the Labor Department, the national jobless rate is at a 17-year low, falling to 4.1 percent in November. Cities, where joblessness is at or below the national average have seen the greatest amount of growth in wages, The Wall Street Journal reported, including Denver, San Jose, Minneapolis and Austin, Texas. Unemployment in the aforementioned cities is below the national average of 4 percent, while wage growth is higher - more than double the countrywide average of 2 percent.  

[City-level data] shows the relationship between wage growth and a tight labor market still holds," Adam Kamins, senior economist at Moody's Analytics, told The Wall Street Journal. "You're seeing the first movers into full employment and past it, with the uptick in wage growth."

The dynamic between low unemployment and wage growth has been particularly apparent in Minneapolis. Citing Labor Department figures, the Journal noted joblessness in the North Star State's most-populated metro stood at a mere 2.3 percent in October, while weekly wages were up by more than 4 percent on a year-over-year basis - the largest annual growth rate since 2011.

State economist and University of Minnesota professor Laura Kalambokidis told the Journal that much of the credit goes to Minneapolis' eclectic economy, as numerous industries are well represented.

"I see the state and the Twin Cities as a bellwether for the rest of the country," Kalambokidis predicted.

Saving rate at 10-year low
Greater spending power at the national level has been observed in buyer behavior, with more Americans hitting the stores for goods and services. For example, in September - the most recent month for which data is available - the saving rate dropped to 3.1 percent, its lowest ebb in a decade, according to the Commerce Department. By way of comparison, the saving rate was at 6.3 percent in October of 2015.

Economists attribute the reduced amount of saving to Americans earning more, increased optimism as well as rising stock prices.

Stock performances have been nothing short of remarkable, with the Dow Jones Industrial Average higher than the previous month's total for the entirety of 2017. Investors are expecting more of the same in 2018, as bullish sentiment rose to 52.6 percent during the final week of December, according to polling done by the American Association of Individual Investors. This means that more than half of stock market participants are expecting stock valuations to be higher in six months than they are currently. Historically, bullish sentiment hovers at around 38.5 percent.

Sentiment falls in December
Consumer confidence in the economy experienced a slight setback in December, after reaching a high not seen since 2000 in November. In the year's closing month, the Consumer Confidence Index slipped to 122, several points below 128.6 reached in November, according to the Conference Board.

Lynn Franco, director of economic indicators at the Conference Board, stressed the sentiment slippage shouldn't be misconstrued as a forecast for the upcoming year.

"Despite the decline in confidence, consumers' expectations remain at historically strong levels, suggesting economic growth will continue well into 2018," Franco said in a press release.

Strong fundamentals - such as GDP, corporate earnings and rising incomes - all suggest that the current economic win streak is more than a mere flash in the pan. Here at Miles Capital, asset management is our specialty, freeing up our clients' time so they can work for their money while their money works for them.

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