Another week of data reflecting the same economic environment of the first six months of the year. The inflation data was very weak, providing no indication it is about to rise as the Fed expects. There simply is no inflation pressure. Wage growth remains well contained in spite of the tight labor market. This condition was again the case with the JOLTS index rising to a near record high above 6 million. It is clear companies are having difficulty finding qualified workers to fill open positions. Normally, companies would raise wages to fill their needs but that is not happening in this cycle. The surge in business fixed investment reported for the second quarter is being driven by companies finding alternatives to hiring employees at higher wage costs. Companies are lowering the labor content by becoming more efficient. This response can only go so far in a service economy.

At some point, wages will begin to increase as companies compete for the limited number of qualified workers. This has been the primary risk cited by the Fed as they remain concerned about rising inflation risk going forward. None of these risks have materialized yet…

ProBank Austin Advisor – August 14, 2017