|Dow||-170.69 to 17,905.58|
|S&P 500||-18.23 to 2,095.84|
|Nasdaq||-40.11 to 5,059.12|
|10-YR Yield||-0.06 to 2.307%|
|Gold||-$8.50 to $1,176.40|
|Crude Oil||-$1.49 to $58.15|
Why aren’t I making more money?
It’s a question you’ve probably asked yourself, and it’s more important now than ever before. After all, home prices are rising. Health-care costs are soaring. And everything from college costs to groceries seems to get more expensive every year.
We’ll get fresh data on wages and job growth tomorrow morning, when the Labor Department releases its latest monthly report for May. In the meantime, the Wall Street Journal tried to answer the big-picture wage question by doing a deep dive into the data.
It analyzed the situation on the ground and in the numbers for metropolitan regions around the country. The goal: Try to explain why wages aren’t rising at anywhere near their old rates – despite the steep fall in the “official” unemployment rate.
|A major employment report is due Friday. People are finding jobs, but salaries aren’t necessarily rising.|
The Journal’s conclusions:
==> Too much “hidden” labor supply. That includes temporary workers who are competing with others for any job they can get, and discouraged workers who previously dropped off the “available to work” labor rolls – but are coming back and competing for new positions now.
==> Too much foreign competition. When companies overseas are paying workers much less, and able to undercut our companies thanks to the dollar’s rise, it puts a lid on U.S. wage growth.
The New York Times highlighted an example of that yesterday, chronicling how Walt Disney (DIS) just laid off hundreds of U.S. IT workers. It hired an outsourcing firm that uses cheaper foreign labor to do the work, and even made the U.S. workers train their replacements if they wanted to get a decent severance package.
==> Too little productivity and too much of a recession hangover. These concepts are more nebulous, but it boils down to the fact that companies believe they aren’t getting enough output from workers to pay much more. Executives are also afraid to boost pay too much because of fear of a renewed economic downturn, considering we suffered the worst slump since the Great Depression only a few years ago.
|“What will it take to get us out of this rut?”|
All told, the Journal found that unemployment rates in many regions are now lower than they were before the economy got shot to heck in 2008. But the 4% or 5% wage increases we saw back then, or in the 1990s, are now more like increases of 2% to 3% – if that.
What will it take to get us out of this rut? Is there some kind of policy prescription to jump start things? Politicians are flailing about, trying to answer those questions. But the proposals announced to date haven’t done much, including state and local efforts to raise the minimum wage to well above the federal level.
Ultimately, it may just take the passage of even more time between the Great Recession and today. Time to replace lost productivity, lost confidence and lost demand. Not what the average American wants to hear, unfortunately, but it seems to be our sad reality.
So what do you think? What will get American wage growth back on track? Any evidence in your own personal experience that lower unemployment rates are boosting wage and salary increases? Or do you find that your pay, or the pay of your employees, is continuing to stagnate? Let me know your views over at the Money and Markets website — because this is a hugely important issue.
(For more details about tomorrow’s market-moving events and my expectations, click on the video to watch a special Money and Markets Extra video update!)
|Our Readers Speak|
Interest rates are clearly on the rise again – but will it last? That’s among several issues you were debating over at the website.
Reader Peter B. said: “Interest rates have bottomed long term, proving again the markets set interest rates and not the Federal Reserve. The Fed will play catch up in 60 days to 90 days, pretending they control interest rates.”
Reader Stu agreed, saying: “Losses in the bond market will continue to mount, albeit with volatility. This will eventually lead to a crash in the general stock markets. Only at this point will bond yields drop just as dramatically as they rose.”
But not everyone is on the same page. Reader D. suggested that economic growth doesn’t support higher rates: “As the U.S. is likely to be heading into a recession, rates have nowhere to go but down in the next year, probably reaching lows not seen since 2012, perhaps even lower. The yield curve will eventually invert, with the Fed in a big struggle with the bond market.”
As for what to do about the increased volatility in bonds, Reader Kevin suggested an alternative to investing in Treasuries offering lousy yields:
“So if I have an extra $1,000 burning a hole in my pocket, I could invest in a 10-year Treasury note and get a 2.4% return … or I could apply it to my 3.625% mortgage and pay it off sooner. No brainer.”
Thanks for the comments. There’s no doubt we’ve been swept up in a massive bond bubble, one that started to pop in 2013 before the process was short-circuited.
Were the negative yields we saw earlier this year the final straw? Just like the last gasp move in the Nasdaq in the first couple months of 2000? Only time will tell … but I wouldn’t be surprised in the least if that turned out to be the case!
Be sure to add your thoughts on this or any other topic we’ve discussed over at the website here.
|Other Developments of the Day|
Bonds got rocked by another global sell off in the overnight hours, with the yield on the German benchmark 10-year note hitting 0.99% at one point. That compares with just a handful of basis points at the lows in April. It was also the highest since September.
General Electric (GE) is officially launching its great asset selloff, hiring several banks to help it auction off $60 billion in lending and leasing businesses. The move is designed to refocus the company toward industrial operations, and away from financial ones.
Former Texas Governor Rick Perry joined the Republican presidential field, officially announcing his candidacy. In a complete non-surprise, former Florida Governor Jeb Bush will announce his own presidential bid – but not until June 15.
Western banks are plenty corrupt, as the investigations and multi-billion-dollar penalties for manipulating everything from mortgages to currencies to interest rates demonstrate. But apparently, they have nothing on the country of Moldova!
The New York Times reports that corrupt bank insiders and shadowy oligarchs loaned themselves hundreds of millions of dollars for fraudulent enterprises. They also allegedly shifted money into overseas accounts, helping drive the country’s top three banks into insolvency and costing the nation huge amounts of money.
Share your comments over at the website when you have some time.
Until next time,