This Friday’s unemployment report is expected to show the United States added 183,000 jobs in July. That number will be watched. However, analyst will need to dig a little deeper to get at the most important number that the BLS will release in the Employment Situation report. The number that will probably have the biggest impact on the stock market is going to be the change in average hourly earnings.
This chart, courtesy of the St. Louis Fed, illustrates why:
The change in average hourly earnings has been stuck below 2.5% since the market crash in 2008. Right, now it is at the upper end of what has been a tight range for the last eight years. If there is a break out a little bit above that range, the trend looks very positive. If the number fails to do so, it means we are still stuck in the range.
Think of it like this. If there was a job at a company that paid $15 an hour and now there are two jobs that pay $7.50 an hour, a job has been added, but the amount of income has not gone up. To some extent, employers have been doing that for the last eight years. The reason why is beyond the scope of this article, but that is what has been happening.
Without, a rise in income, people do not spend as much and the economy remains stagnant. The consumer is two thirds of the U.S. economy.
The Fed is also in the process of raising rates. They are looking for signs of inflation to do so. Rising wages would help justify more rate rises.
Right now, the forecast is for hourly earnings to be up 0.3%. This would be the biggest increase since February. It would only equate to a 2.4% year over year increase. I think average hourly earnings need to move solidly above that level, if this rally in stocks is to keep going. Closer to 3%.