A 'we are hiring' sign is displayed on a table during the San Francisco Hirevent job fair.
Photograph by Justin Sullivan — Getty Images
By Chris Matthews
April 30, 2015

The big economic debate of the week has been what to make of the lackluster first quarter GDP growth figures released by the Commerce Department on Wednesday.

With growth coming in at just 0.2% on an annualized basis, many analysts worried that these figures, combined with disappointing job growth numbers in March, would give compelling evidence that the economic recovery is tripping over itself once again.

But two economic reports released Thursday morning offer some cause for optimism. First, weekly applications for new jobless benefits fell sharply to 262,000, the lowest figure in 15 years. Second, the Bureau of Labor Statistics released its quarterly employment compensation index, showing that total worker pay–including benefits and bonus payments– increased by 2.6% over last year, the fastest pace since the end of the recession.

PNC economist Stu Hoffman argues that the report spells good news for working Americans. “Workers finally appear to be benefiting from the tighter labor market,” he wrote in a research note on Thursday. “Workers have gained more power relative to firms and compensation growth has picked up.” Hoffman points to recent decisions by Wal-Mart, Target, and McDonald’s to increase their base pay as anecdotal evidence of this shift.

Rising worker compensation is great news for the economy overall, as it should lead to increased consumer purchasing power, which, in turn, could boost economic growth.

These reports also bolster the arguments of those, like members of the Fed’s Open Market Committee, who dismissed Wednesday’s weak GDP numbers as the result of “transitory factors” like worse-than-expected weather and the dramatic pullback in investment and employment in the oil and gas industry in recent months.

At the same time, these reports may not be the best news for the stock market. For one, overall corporate earnings growth has slowed dramatically lately, and rising labor costs are only going to hurt the bottom line even more. Second, more evidence of wage growth will only strengthen the argument of Federal Reserve members who think we should raise interest rates sooner than later in order to stave off inflation. Expect both of these factors to be bearish for the stock market in the weeks and months ahead.

SPONSORED FINANCIAL CONTENT

You May Like

EDIT POST