Morning Report: Wage inflation is beginning to creep up 2/5/16

Stocks are lower this morning after the jobs report. Bonds and MBS are down

Jobs report data dump:

  • Nonfarm payrolls + 151k vs 190k expected
  • Unemployment rate 4.9%
  • Average Weekly Hours 34.6
  • Average Hourly Earnings up 2.5%
  • Labor force participation rate

Overall a good report, Payrolls are disappointing, but the rest is strong. We are starting to see the beginning of wage inflation with average hourly earnings up 2.5%. December’s number was revised upward from 2.5% to 2.7%. Stocks and bonds are down as this report will keep pressure on the Fed to maintain its posture of normalizing rates. The 2-year yield is higher by 4 basis points.

Higher wage inflation coupled with no inflation equates to lower profit margins. Ironically, this is the sort of “middle class economy” that politicians are promising to bring back. Good for workers, not so much for investors.

The rise in the dollar and the corresponding fall in commodity prices is wreaking havoc on other economies though. Citi is saying fear oilmageddon. This will be felt not only in developing economies like Russia and Brazil, but also developed economies like Canada and Norway. Norway’s “economic miracle” may have simply been a massive leveraged bet on oil and real estate.

Obama proposed slapping a $10 per barrel tax on oil. Obviously that is going nowhere..

1 in 3 houses are still bought with cash, according to CoreLogic. This is a drop of 3 percentage points from a year ago.

36 Responses

  1. Wage inflation results without product inflation would only result in lower profit margins if productivity stayed the same. Also, lower commodity and raw material prices would help a company absorb higher wages without having to increase prices.

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  2. Ahhhhhhh…

    Somebody got a cigarette?

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  3. Interesting interview with Jonathan Haidt, the author of the book I recommended several weeks ago.

    http://www.mindingthecampus.org/2016/02/a-conversation-with-jonathan-haidt/

    JOHN LEO: You and your colleagues at your new site, Heterodox Academy, have made a lot of progress in alerting people to the problem that the campuses are pretty much bastions of the left. What kind of research did that prompt?

    JONATHAN HAIDT: There have been a few studies since my talk to measure the degree of ideological diversity. My request for a show of hands was partly a rhetorical trick. We know that there were people in the audience who didn’t dare or didn’t want to raise their hands. Two social psychologists – Yoel Inbar and Joris Lammers short did a more formal survey. And they found that while there is some diversity if you look at economic conservatism, there’s none if you look at views on social issues. But all that matters is the social. That’s where all the persecution happens. They found just 3-5 percent said they were right of center on social issues. .

    JOHN LEO: Have you gone into the reasons why?

    JONATHAN HAIDT: Oh, yes. After the talk, I was contacted by a few social psychologists who were interested in the topic. None of them is actually conservative. We looked into a bunch of the reasons. And the biggest single reason is probably self-selection. We know that liberals and conservatives have slightly different personalities on average. We know that people with a left-leaning brain are attracted to the arts, to foreign travel, to variety and diversity. So we acknowledge that if there was no discrimination at all, the field would still lean left. And that’s perfectly fine with us. We don’t give a damn about exact proportional representation. What we care about is institutionalized disconfirmation – that is, when someone says something, other people should be out there saying, “Is that really true? Let me try to disprove it.” That is now much less likely to happen if the thing said is politically pleasing to the left.

    JOHN LEO: But what about the argument that things are really tough for conservatives in academe now? After they get through college, they have to find a mentor in graduate school, keep swimming upstream and try to get hired somewhere by a department head who’s looking for another leftist. And conservatives can run into cruel and aggressive people in academe.

    JONATHAN HAIDT: Yes. That’s correct.

    JOHN LEO: To many of us, it looks like a monoculture.

    JONATHAN HAIDT: Yes. It is certainly a monoculture. The academic world in the humanities is a monoculture. The academic world in the social sciences is a monoculture – except in economics, which is the only social science that has some real diversity. Anthropology and sociology are the worst — those fields seem to be really hostile and rejecting toward people who aren’t devoted to social justice.

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    • “They found just 3-5 percent said they were right of center on social issues.”

      But the center and the left-of-center are getting persecuted, too, by the far left. Of course, self-identification is tricky when it comes to people on the far left socially.

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      • KW:

        But the center and the left-of-center are getting persecuted, too, by the far left.

        Seems inevitable, don’t you think? The outrage machine needs a target, and once all the conservatives are gone, the outrage can only be directed at what remains. But that is probably a good thing. As Haidt says:

        So, another reason for hope is that more and more progressive professors and presidents are being attacked. And each time they’re attacked, they usually feel quite bitter. And at some point we’re going to get a college president who has been attacked in this way who sticks his or her neck out and says, enough is enough; I’m standing up to this.

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      • It is inevitable. The problem is mis-identified almost universally. The hero (free speech, in this case) is misidentified as the villain. The villain of this piece is getting what is desired through bullying and intimidation, it is the suppression of ideas rather than the discussion of them. As such, the disease—that is, creating and exercising power through the use of an in the form of bullying, intimidation, and oppression—ends up applying to everybody over all sorts of things, including those originally sympathetic to the bullies end goals and saying: “The tactics are justified in the pursuit of social justice!”

        My general left-of-centeredness disappeared in college as I was a direct witness to that tactic. Fortunately, it wasn’t all that effective at the time, as the administration didn’t, say, fire the life drawing teacher who violated the social justice norms by presenting 18th century nudes without providing an explicit context of female oppression by the patriarchy . . . but it was still eye-opening. There was a pop-up protest at the outbreak of the Gulf War, which included an upside down American flag with graffiti on it (I think it was the words “blood for oil” or some such), and students who disagreed on the issue got together for a discussion, and it was the lefties who said: “F*ck you!” and stood up and stormed out.

        I was also a target (I did a lot of photography of women without putting it in the context of objectification and patriarchal oppression) and the photo teachers (both very liberal, and still very liberal: I’m friends with ’em on Facebook and they are big Bernie supporters) told them it wasn’t their business to bring all their baggage to the critique, or tell other artists what was acceptable subject matter. Who knows what sort of hate speech charges might be brought against them today.

        I was doing a critique once and one of the SJWs at the school kept interrupting me, telling me that the words I was using were wrong. I couldn’t call something that was grotesque (the monstrous birthday party being depicted) because everything was beautiful and that was the only sort of description I was allowed to use. I began to realize these people were crazy.

        A fellow student at the time (who is still a very liberal guy up to this day) found himself bewildered by the anti-Gulf War protestors once the fight was over. They were all disappointed that their planned protests weren’t going to happen (especially the ring-leaders, as Amy Carter was attending MCA at that time and they loooooved having a former president’s daughter participating in the protests). He said, “Hey! The war is ended! It’s done. No more bombs dropping, no more people dying! Celebrate!” They did not agree. Because he was the case of a liberal who actually just wanted the war to be over.

        After David Bowie died, another fellow student posted a picture of Bowie at MCA in 1974 for something or other. Right next to him was our paper making instructor, Dolph Smith. I thought about what Dolph (whose politics I don’t know, but I got the impression he was a very liberal guy) said about the pop-up Gulf War protest art that began pretty much the minute it hit the news. “I spend every day trying to get the students excited and engaged in something, and then the one thing they get excited and engaged about is something they will have absolutely no effect on.”

        But, of course, making a difference isn’t actually the point for certain people.

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    • Noted, re: Haidt. Just yesterday I was animatedly discussing the book with a male neighbor when his wife interceded with “he’s that conservative philosopher, right?”

      I often find myself agreeing with David Brooks on the very subject that my liberal friends think proves he is a conservative nutcase.

      What is often lost is the value of informed debate, in a self selected group. That should never be the case in academe. Haidt is calling it as he sees it and I am sure he is correct.

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      • Mark:

        Just yesterday I was animatedly discussing the book with a male neighbor when his wife interceded with “he’s that conservative philosopher, right?”

        Heh. Yeah, the conservative philosopher who voted for Obama twice and says things like “I am absolutely horrified by today’s Republican Party – both in the presidential primaries and in Congress. If they nominate Trump or Cruz, I’ll vote for the Democrat, whoever it is.”

        Which reminds me, I want to send Haidt an e-mail…maybe he can explain to me what is so detestable about Cruz, since no one else has been able to.

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      • maybe he can explain to me what is so detestable about Cruz, since no one else has been able to

        Well, FWIW, here is one example of why people find him detestable. YM, of course, MV.

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        • Did that piece persuade you?

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        • Ted Cruz treats the election like one of his college debate competitions where no dirty trick is too low if it gives you an edge. In fact, the sneakier it is, they more you are admired. In some ways it’s just clever campaigning. If your opponent’s ground game is so poor that a stunt like that can work, shame on him. Taking advantage of Carson supporters has a certain level of poetic justice. On the other hand, a win-at-any-cost attitude shows a lack of moral compass.

          I’m not even sure what part of the demographic the rib nudging “New York values” with their “focus around money and the media” is supposed to be appealing to. I’m very good at spotting dog whistles but I don’t quite know which hounds he is calling.

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        • yello:

          On the other hand, a win-at-any-cost attitude shows a lack of moral compass.

          Welcome to the Democratic party!

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        • Mich:

          Well, FWIW, here is one example of why people find him detestable.

          Thanks. The first thing I would note is the irony of an article about how someone is a nasty liar that carries the by-line Dana Milbank.

          But that aside, it isn’t very convincing. Even taking the accusations at face value, if a politician was detestable for mischaracterizing an opponent’s positions, every candidate in the history of the republic would have been detested. I mean, if you can’t vote for Cruz because of that, how can you possibly vote for Hillary, or Bernie, or have voted for Obama? As for the cheap, low level campaign dirty tricks, again, that seems to be pretty standard fare in presidential politics. If you think the Cruz campaign is underhanded, you should read about how FDR got elected 4 times. Or Kennedy.

          And I have to admit, I have lived and worked in NYC on and off for nearly thirty years, including the last 10, and if New York is a “dog whistle” for Jewish, it’s news to me. I think I know exactly what Cruz was referring to with his contempt for “New York values” (a contempt I share) and it has nothing to do with Jewish dog whistles.

          So as always, we seem to be left with little more than that Cruz is detestable because he is detested…”those who know him best seem to despise him most.” Really? I hadn’t realized his wife and family had come out against him.

          Anyway, if Republicans are trying to bring Cruz down simply because they don’t like him personally, I think they are idiots. If they have legitimate policy reasons for thinking Cruz is a bad candidate, I’d like to hear them.

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      • the by-line Dana Milbank

        I know. That’s why I noted that it was for what it’s worth.

        All I know is that he is near universally disliked by people who’ve worked with him and/or known him personally. He gives me almost the same knee jerk reaction that Shkreli does, so I’m merely passing on that opinion piece.

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      • @yellojkt: “Ted Cruz treats the election like one of his college debate competitions where no dirty trick is too low if it gives you an edge. In fact, the sneakier it is, they more you are admired.”

        People who aren’t playing that game? Kasich and O’Malley. Bernie, maybe, but I would argue that he’s a fluke, and may be employing a strategy to get Hillary to overplay her hand.

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      • @Scottc1: “maybe he can explain to me what is so detestable about Cruz”

        I get the impression it’s supposed to be something you experience when you interact with him personally? I dunno, but I get a real LBJ-vibe from him in terms of personality (not in terms of politics). But I don’t know that he’s detestable, not having met him.

        I do know he made a point (at one point of time) of noting he was a Christian first and an American second, which is fine as a religious position but not, perhaps, the best attitude for a politician to have. But perhaps it was just pandering.

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      • “He gives me almost the same knee jerk reaction that Shkreli does, so I’m merely passing on that opinion piece.”

        It’s his face and the cadence of his speech, to some extent. And body language. He’s gonna have a harrrrd time in the general, even against Sanders.

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        • I don’t know why you were resonding to me, Kev, so don’t take my response to you as “to you.”

          See: nsideclimatenews.org/news/04022016/oil-industry-report-shows-early-knowledge-climate-change-impact-api-american-petroleum-institute

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    • I don’t know if anyone else will care, but I’ve been wandering around Haidt’s new blog site linked in that interview, Heterodox Academy, and if you have an interest at all in social psychology as it relate to politics, or the things that have been going on at campuses recently, you should probably bookmark the site. Pretty interesting stuff.

      This post, Are Conservatives Really Simple-minded, was not only interesting itself but had some great comments attached to it. (The first comment is not representative.)

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  4. “Obama proposed slapping a $10 per barrel tax on oil. Obviously that is going nowhere..”

    He should propose a price-down tax. For every price that drops, he taxes consumers more because . . . justice.

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  5. McWing:

    Your fears could begin to manifest even in the absence of laws prohibiting abortion. The CDC wants women who aren’t on birth control to refrain from drinking alcohol.

    http://thefederalist.com/2016/02/05/the-cdc-doesnt-know-how-babies-are-made/

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    • Government will inevitably use all its power.

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      • Mcwing:

        Government will inevitably use all its power.

        I think the likelihood of government going overboard in the application of its power is directly proportional to the degree to which those individuals that occupy government are removed from the governed. That is to say, a person with power in the federal government is far, far more likely to use it in an objectionable manner than is a person with power in a local government. It is conceivable that nannies in a federal agency would both desire and be able to make it legally difficult for a pregnant woman to drink alcohol while pregnant. It is significantly less conceivable that nannies in the local town hall would desire and be able to do so. And whether less conceivable or not, certainly it is less pernicious.

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      • @scottc1: “I think the likelihood of government going overboard in the application of its power is directly proportional to the degree to which those individuals that occupy government are removed from the governed.”

        Concur. Also, in any bureaucracy, the chances the decisions made will be ineffectual or actively work in opposition to their espoused goals (say, the “common good” or “a robust economy” or “good service”) increase in direct proportion to the level of remove from the front line, rather it be the customers of a company or the governed in a government.

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    • “but studies show that our intellectually bankrupt age will believe anything so long as the words “studies show” appear in the text.”

      Yep.

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    • @scottc1: “The CDC wants women who aren’t on birth control to refrain from drinking alcohol.”

      This is seems like an obvious gambit to get all women on birth control.

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  6. “Tired of political irrationality? Your representatives aren’t stupid, just self-interested.”

    http://www.usatoday.com/story/opinion/2016/02/03/politics-corruption-sleaze-dishonest-graft-transit-self-interest-column/79744874/

    Yup. And this is why light rail is the answer to all our energy problems!

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  7. Heh

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  8. Kevin Williamson gets better and better:

    http://www.nationalreview.com/corner/430898/hillary-talks-about-americans-theyre-peasants

    The American proposition is precisely the opposite of what Herself imagines: The U.S. government exists at our sufferance, not the other way around. We have governments because there are some things that we as individuals have a hard time doing through private enterprise, and we have a federal government because there are things that the several states cannot manage separately, such as national defense and border security. (And, bang-up job on the latter, Washington.)

    A president isn’t a prince, and a citizen isn’t a serf.

    Herself’s invocation of serfdom is the logical extension of “You Didn’t Build That”-ism, the backward philosophy under which the free citizen is obliged to justify his life and his prosperity to the state, in order to satisfy the economic self-interest, status-seeking, and power-lust of such lamentable specimens as Elizabeth Warren, a ridiculous little scold who has never done a single useful thing in her entire public life. The American model is precisely the opposite: Government has to justify itself to us. The states created the federal government, not the other way around, and the citizens created the states, not the other way around.

    We don’t owe these jackasses any service. They owe us service: services they routinely fail to perform. We’ve got jihadis shooting up California while the government doesn’t even bother to track visa overstays or properly scan entrants from Pakistan by way of Saudi Arabia (because what could possibly go wrong in that scenario?) in spite of being legally obliged to do so. Instead, the powers that be in Washington are literally masturbating the day away when they aren’t busy poisoning veterans to death with dope.

    These people—these people—are going to lecture us on citizenship? How about you skip the homilies and do your damned jobs?

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