Last week’s release of the August employment report confirmed the strong trends for hiring and growth in the U.S. The economy added 201,000 jobs for the month, but more importantly, average hourly earnings increased by 0.4% for the month and 2.9% year-over-year (YOY). Wage gains have been stubborn to rise during this economic expansion, however, YOY gains in excess of 3% have become a real possibility. This level of wage gains would support a higher level of sustainable inflation and push interest rates higher.
Over the next few months, I will be closely watching wage gains and inflation in the U.S., as well as the continuing tumult in emerging markets. Fresh readings on inflation will be published this week with the Wednesday and Thursday releases of the Producer Price Index and Consumer Price Index. The interplay of these forces will likely drive much of the market direction for the remainder of the year. I continue to expect a rise in longer term interest rates as the Federal Reserve continues to gradually increase the Fed Funds rate. An increase at the September 26th Fed meeting is anticipated.
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