The downward trend in wage growth ends the inflation fear of the 1970s

Given friday work reportthose who have been concerned with the entrenched 1970s inflation – which would lead to double digits mortgage rates — you can put your disco shoes back in the closet.

I have tried to explain that the The inflation of the 70s is not a reality, and Friday’s report should ease fears that wage growth is spiraling out of control. Since 2022, as the job market has been heating up with massive job gains and high vacancies, year-over-year wage growth data has been falling.

As you can see in the chart below, year-over-year wage growth peaked in early 2022 and has been on a clear downward trend for some time now. And even with unemployment rates below 4% for some time, the three-month annualized average wage growth is 3.2%.

Let this sink in; while the job market was booming in 2022 and 2023, the fear of a wage spiral never materialized. Wage growth is much stronger than what we saw in the previous expansion, but as we all know, when workers get higher wages, the Federal Reserve’s job is to kill that action, and they’re doing everything they can to do it again

No entrenched inflation

The 10-year bond yield spiked on Friday, but I wouldn’t make a big deal of it since it’s a holiday Friday. As you can see below, if we had entrenched inflation, the 10-year yield would be well above the current 5.25%, and instead, even with a healthy labor market, the 10-year yield is closer to below. below 3% than north. 7% as we saw in the late 1970s. I recently wrote about inflation and mortgage rates in the 1970s..

Of BLS: Total nonfarm payroll employment rose by 236,000 in March, with the unemployment rate little changed at 3.5 percent, the US Bureau of Labor Statistics reported today. Employment continued to trend upward in leisure and hospitality, government, professional and business services, and health care.

The monthly employment report showed losses in construction, retail trade and manufacturing, while the other sectors showed growth.

Here’s a breakdown of the unemployment rate tied to education level for those 25 and older.

  • Less than a high school diploma: 4.8% (previously 5.8%)
    High school graduate and no college: 4.0%
  • Some college or associate degree: 3.0%
  • Bachelor’s degree or higher: 2.0%

For those who didn’t follow me during the COVID-19 recovery period, I had some critical talking points about the job market:

  • He COVID-19 recovery model was written on April 7, 2020. This model predicted that the US recovery would occur in 2020, and i took it back on December 9, 2020.
  • I said that the labor market would fully recover for September 2022, which means it will take some time before we can recover all the jobs lost to COVID-19. During this process, I predicted that job openings would reach 10 million. Even in 2021, when work reports failed a lot, I double on my premise
  • Now, depending on how long this expansion lasts, we’re still in job recovery mode.

Before COVID-19 hit us, our total employment was 152,371,000. We were adding more than 200,000 jobs per month back then, and as of early 2020, the job market was improving as the years passed. trade war fears Let’s assume we didn’t have COVID-19 and job growth continued without a recession. It is not unreasonable to say that we should now have between 158 and 159 million jobs, not 155,569,000 as reported today.

As the graph below shows, we are still making up for time lost due to the COVID-19 recession because we have more than 166 million people in the civilian workforce, and the COVID-19 recession halted the trajectory of job growth in the that we were

Labor market interns

I raised the sixth recession red flag on August 5, 2022, so I am looking for different things in the job market in this stage of expansion. In the previous expansion, until February 2020, I never raised all six flags and we had the longest economic and labor expansion in history, which only ended due to COVID-19. However, that is not the case today.

The last time I had six red flags of a recession was in late 2006. The recession didn’t start until 2008, and credit markets were much more stressed at that time. Now, I’m tracking internal data lines, and jobless claims are #1. We can’t have a job-loss recession without jobless claims going up, and so far, the data has yet to justify that conversation.

However, I do have a target number for when I think the Fed’s topic of conversation will change regarding the economy, which is 323,000 at the 4-week moving average. We recently had some seasonal reviews of unemployment claims, giving us a higher number to work with than before. Prior to the revisions, we were trending near 200,000 on the four-week moving average, and now that has been increased to 237,500, so the labor market is not as tight as before. The chart below is the initial jobless claims data after revisions.

Job posting data, which has been a staple of my job scorer recovery call since I applied for 10 million job postings, is also cooling off. As you can see in the chart below, the job openings data is now trending lower, which goes along with cooling wage growth. I still put more weight on the jobless claims data than the job openings data, but both charts show a less tight labor market.

As of this work report, we are getting closer to returning to normality. Normal doesn’t have any significant job gains or massive wage growth data that inspires fears of wages spiraling out of control. The question now is whether the Fed has done enough to get what they want, a higher unemployment rate, as they have predicted a job-loss recession this year with an unemployment rate of about 4.5-4. 75%

My Forecast 2023 for the 10-year yield and mortgage rates was based on economic data remaining firm, which means that as long as jobless claims don’t hit 323,000, we should be in a range between 3.21%-4.25%, with mortgage rates between 5.75%-7.25%.

If the job market crashes, the 10-year yield could hit 2.73%, meaning mortgage rates could drop, even as low as 5.25%, the bottom end range for 2023.

Without him banking crisis, bond yields would still be higher today, on both the long and short ends. However, the banking crisis has created a new variable that means monitoring economic data will be more critical than ever. The bond market has assumed that this will push the US into a recession faster, which is why the 2-year yield has tanked recently.

This means that every week, as we do with the real estate market tracker article, we will be attentive to all the lines of data that will give you a prospective vision of the real estate market. Despite bond yields rising on Friday, this week was good news for long-term mortgage rates and fears of wage growth spiraling out of control have allayed.

Once we get more supply in other sectors, we can make good progress on inflation. This means that mortgage rates can drop without the worry of an inflationary breakout, as we saw in the 1970s.

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