Financial markets displayed heightened sensitivity to inflationary trends at the open on Tuesday. The latest Employment Cost Index (ECI) figures indicated an unexpected rise in labor costs, mainly driven by increased compensation for government and unionized workers. According to the Bureau of Labor Statistics, the ECI, which measures wages and benefits, jumped from 0.9% in the last quarter of 2023 to 1.2% in the first quarter of this year. This increase exceeded the anticipated 1.0%, marking the most substantial quarterly rise in a year and sustaining inflation pressures at a critical time.
Stocks & Bonds Slammed After Unionized & Govt Workers Send Employment Costs Soaring In Q1
…biggest QoQ jump in employment costs in a year, thanks to govt workers' wages soaring…https://t.co/DZL4bt3cFe
— FTMFW (@FTMFW77) April 30, 2024
The financial markets were quick to respond to the labor cost surge, with the Dow Jones Industrial Average plummeting by 299 points, a 0.8% decrease, and the S&P 500 and Nasdaq also experiencing declines. The 10-year Treasury note yield also rose on Tuesday morning to nearly 4.66% — pointing to investor anxiety about what the Federal Reserve will do in the immediate future.
The rise in labor costs is particularly notable within government and unionized sectors. Government employee compensation surged 4.8% year-over-year, nearly reaching historical highs, while unionized service workers saw record wage increases. The sharp contrast between the wages of those workers and private sector employees points to a highly concerning trend showing America’s actual productive capacity is already mired in recession. The only real growth many analysts are seeing is in the areas propped up by the massive ongoing borrow-and-print spending in Washington.
Economist Paul Ashworth said on Tuesday, “The persistence of wage growth is another reason for the Fed to take its time on rate cuts.” As the Federal Reserve’s policy meeting concludes on Wednesday, all eyes will be on Fed Chair Jerome Powell and his colleagues for any signals on future interest rate changes. Most observers expect the central bank to maintain a cautious approach.
Further delays in rate reductions — or even rumors of possible hikes — because of persistent inflation would run directly counter to the narrative the Biden campaign desperately wants to push this summer.
