How Will Markets React to a Spike in October Wages

Written by Richard Hokenson 

For several months prior to the release of the CPI for March 2018 there were many comments to the effect that the year-ago percent change would register a significant increase because of the comparison to the decline in March 2017

To the best of our knowledge, there has not been a similar commentary regarding Average Hourly Earnings (AHE) for October 2018. In October 2017, AHE declined by 4 cents (-0.15%). Monthly declines in AHE are unusual but they are not rare. In the prior 7 years, there have been eight monthly declines (see Chart 1). Although 3 of those declines occurred in October (2011, 2012 and 2017), it would be more prudent to consider the possibility that October 2018 is not likely to repeat that pattern.

The table below shows the results based on different scenarios. Under the simplifying assumption that upcoming increases for August and September replicate the monthly increases of last year, then the September AHE would register a year-ago percent change of 2.68%. If the October 2018 monthly increase matches the January-July average (6 cent or 0.22%), then October would spike to 3.06%. At 7 cents, the percent change is 3.10%; at 8 cents, it is 3.14%.

Will the markets take that in stride as they did with the CPI or will it be a repeat of the overreaction to the 2.9% wage increase initially reported for January 2018 that was revised away the following month. The “deficiency” of AHE is that it is volatile month-to-month depending on industry composition. That is why we have always preferred the Employment Cost Index (ECI) as a much better measure of wage inflation. The ECI continues to be in line with our expectation that wage inflation remains moderate.

We would also note that the October 2018 AHE will be released on Friday November 2. That could also end up being a very interesting issue for the midterm elections to be held the following month.


This update was researched and written by Richard Hokenson, as of August 23 2018