One Eye on a chart: Looking at US real wages  

Published on February, 10th 2022Market and research

Stéphanie BIGOU

Portfolio Manager

Intended for Professional Clients in accordance with MIFID.

Risks on the US consumer should force the Fed to be more patient in H1 2022 than market anticipates.

Written on 4th February 2022 by Seeyond.

Let’s look at the facts:

  • While nominal wages are rising in the US, real wages are not. Real wages have been anchored in negative territory since the beginning of 2021 and the trend has intensified over the past three months.
  • The historical correlation between US consumer confidence as calculated by the University of Michigan and real wages points to the possibility that the negative surprises on the private consumption front that we saw in December in the US could extend into the first half of this year.

What do we think?

  • The objectives of central banks and the Fed in particular are multiple. If inflation comes first, the fight against social inequalities, global warming and public solvency closely follows.
  • We continue to believe that the Fed will be patient and gradual in raising short-term rates and managing its balance sheet for two reasons: 1- they know that it will have little effect on current inflation, which is mainly driven by supply chain distortions and geopolitical risks, 2- the decline in real wages could weigh on growth and a too rapid very hawkish bias would accentuate the loss of households’ purchasing power they look to prevent, hand in hand with the Biden administration.
  • The Fed has recently tightened its rhetoric to avoid an uncontrolled rise in long-term rates and to restore its credibility. Its actions should be more moderate. In this context, US interest rates could tactically quickly regain value.

Source: Bloomberg, Seeyond – Data from August 2012 to November 2021

Source: US real wages & consumer confidence - Bloomberg, Seeyond – Data from September 2007 to December 2022 –  Monthly

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