Watch wages like a hawk should be the current mantra of policymakers. The key number is not employment, but wages. The payrolls miss (up 559k) on Friday was largely inconsequential, although not for Federal government revenues. The risks of a budget overshoot this year and in 2022 remain high.
Smaller companies are experiencing acute labour shortages. By any reckoning, the labour market is very tight. This may go some way to explaining the extraordinary bidding wars have erupted in residential property. Interest rates are low, but wages are rising too.
Average hourly earnings for all employees rose 0.5% m/m in May following a rise of 0.7% m/m in April. Two strong months do not constitute a trend. Nevertheless, a third and fourth month of similar gains to the last two, could mark confirmation: the NAIRU has risen.
Summary
- Yellen OK with slight rise in interest rates
- But US may have breached NAIRU already
- Bitcoin adds to inflation risks
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