Fed’s Yellen: “We Don’t Need No Stinking Wage Growth!” Despite Not in Labor Force Rate at 37.3 Percent

Well, the Federal Reserve Chair Janet Yellen didn’t exactly say the famous line from the Humphrey Bogart/Tim Holt film Treasure of the Sierra Madre, “We don’t need no stinking wage growth.” But according to the Wall Street Journal’s Jon “The Omen” Hilsenrath,

“Ms. Yellen said explicitly in that March speech that she is prepared to start moving interest rates up even before she sees sure signs that wages are rising faster. “That said,” she added, “I would be uncomfortable raising the federal funds rate if readings on wage growth, core consumer prices, and other indicators of underlying inflation pressures were to weaken.”

Given her stance, Friday’s employment cost report doesn’t look like a deal breaker for the Fed in its long-running debate about when to raise short-term interest rates. Wages appear to be stagnant but not clearly weakening, which is what she set out as her threshold for not acting. Still, it creates new doubts for officials and doesn’t help them build the confidence they’re hoping to build that the job market is nearing full employment and inflation rising toward 2%.”

True, the Employment Cost Index is at an all-time low. But the percentage of people NOT in the labor force is now 37.3%.

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The NOT in labor force rate is the number of those NOT in the labor force divided by the sum of those in the civilian labor force and those NOT in the labor force.

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U.S. Economy Picked Up in Second Quarter To 2.3 Percent, But Not Wage Growth (30Y Treasury Yield Falls)

Although GDP growth of 2.3% is still below the average GDP growth rate since 1947 of 3.2%, some analysts are saying that a gradual raising of rates by The Federal Reserve is “reasonable.”

(Bloomberg) — The world’s largest economy expanded at a faster pace in the second quarter and managed to eke out a gain at the start of the year, painting a picture on incremental progress consistent with the Federal Reserve’s view.

Gross domestic product rose at a 2.3 percent annualized rate, and a revised 0.6 percent advance in the first quarter wiped out a previously reported contraction, Commerce Department data showed Thursday in Washington. The median forecast of 80 economists surveyed by Bloomberg called for a 2.5 percent gain. Consumer spending grew more than projected.

The economy has moved beyond some of the early 2015 constraints including weather and port delays, while cooling global markets, a strong dollar and insufficient wage gains may continue to limit growth. Fed officials, considering when to begin raising rates this year, concluded on Wednesday that the U.S. is making progress.

“We have plodding, modest yet durable growth,” Michael Gapen, the New York-based chief U.S. economist for Barclays Plc., said before the report. “A gradual raising of rates is reasonable” for the Fed.

Average wage growth (2%) still remains below GDP growth rate (2.3%).

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According to the Atlanta Fed GDP NOW report, the spike in GDP in June was … residential investment.

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The GDP report was lower than the expected 2.5%. Hence, the 30 year Treasury bond yield slipped below 3%.

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Bubble-up! Fed policy is working (at least for creating massive asset bubbles, not for wage growth).

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Hey Bartender! Fed Looks To Raise Rates In Face of The Great Bartender Recovery

This has been a SLOWWWWW economic recovery. Full-time employment is ALMOST back to 2007/2008 levels of full-time employment. However, average wage growth is almost 50% lower than in 2007 despite The Fed not having raised The Fed Funds Target rate since 2006.

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One reason that wage growth is so slow is that many of jobs added post-2007 have been lower wage service jobs (e.g., bartenders).

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Here is a chart courtesy of Zero Hedge showing bartender growth versus manufacturing job decline.

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Someone sent me an email repeating the common meme: “But wage growth will remain slow until unemployment bottoms out!” Not true. The toxic green line shows today’s unemployment rate compared to average YOY wage growth. This “recovery” is the lowest wage rate given the current unemployment rate.

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So, let me get this straight. The Fed wants to raise rates in the face of stagnant wage growth and a surge in bartenders.

Even Goldman Sachs CEO and Chairman Lloyd Blankfein sees a jolt when The Fed raises rates.

Here is a photo of Fed Chair Yellen and former Fed Chair Bernanke sharing a beer in front of their favorite bartender.

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Hey bartender! This is your recovery!

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