Two data points poped up in the last 24 hours that suggest that the US economy might actually be moving in the right direction, finally. One of the data points, on wages, is critical and should be seen as a leading indicator. The second, on home starts (construction), is useful but not a leading indicator.
Yesterday the Beurau of Labor and Statistics published data that suggested that real average weekly earnings were up 2.2% year over year to September 2015. This is indeed important data since this is one of those data that sits at the center of the Fed’s “data-based” decision to raise short term rates. The lack of wage growth, inspite of a low of near 5% unemployment, is holding the Fed back. This is indeed an early and positive sign – but it is only one and the first of its kind at this scale. Let’s see how October is reported in November.
The second data point was reported on the inside cover of today’s US print edition of the Wall Street Journal. The article is called, ‘After a Lull, Home Starts Rise 6.5%‘. The scale of the growth is impressive, but this is not as much a leading, demand-based indicator as much as a supply-side, tax-induced indicator. Housing starts does not signal new demand, it tells us that costructions forms have figured a way to make money. It could signal an increase in demand from home-seekers – but that is an implied driver, not a known causal indicator.
For my money I would keep my eye on the weage growth. I think that is the main trigger for the Fed’s next interest rate move. I still feel a 2016 hike is the most likely however. The question is – sooner than June 2016, my last estimated deadline?