A couple quick chart updates:
Compensation Percolation: Like the latest rise in yields, the central questions around prospective wage inflation remain ‘how far’ and ‘how fast’ – the answers to which carry discrete allocation implications as too high/too fast augurs expedited policy tightening in the latter case and a divorce from macro fundamentals and (at some point) a negative feedback loop to equities in the former.
Anyway, one need not be a slope savant or stable genius to recognize the rampant up-and-to-the-right’ness below. This morning’s ECI data for 4Q showed growth in employee wage and salaries accelerating to +2.6% Y/Y, marking a new cycle high. Continued acceleration and new cycle highs also characterized growth in Total Compensation (wages + benefits).
Of course, wage growth remains depressed on an absolute/historical basis, particularly for this point in the cycle, and trudging and choppy improvement in labor market fundamentals remains a hallmark of the present expansion but the larger 2nd derivative trend in the ECI is clear.
As we’ve discussed (see: (HEDG)EYE-CANDY: Rich, Confident & Transitory), with minimum wage increases hitting in January, tax withholding and ATI changes hitting in February alongside tax reform related bonus distributions, the path for organic wage inflation is of particular interest at present.
Capex & New Orders: With all the regional Fed Survey’s in for January ahead of the ISM data tomorrow, our Capex Plans Composite Index continues to make new highs while the New Orders Composite reflected some modest retreat off of the recent cycle peak/all-time high in activity. Whether the confluence of harder comps (post-hurricane rebound activity in Sept-Nov) and extreme weather conditions to start January provided some underlying distortion is difficult to say.
In any case, the New Orders Composite is signaling some modest backslide in the correspondent ISM series and with ISM New Orders printing a 167-month high in November and marking a 7th consecutive month >60, some level of giveback – in an inherently mean reverting series that never sustainably holds current levels – is increasingly inevitable.
