There are currently about two jobs available for every unemployed person, and as a result, employers have had to raise wages to attract suitable candidates.
That sounds like a good thing—and for Americans who are facing higher prices on everything from groceries to rent. But the Federal Reserve isn’t happy about that. In order to fight inflation, you need to cool the economy, and bigger salaries do the opposite. Companies can also pass on higher labor costs to consumers, and that means higher prices.
why does it matter: This inflationary cycle – pay more then charge more – is exactly what the Fed wants to crush. That’s why you’ll pay special attention to wage growth numbers in today’s jobs report. If it continues to accelerate, the central bank will have more reason to raise interest rates aggressively at its meeting later this month.
Anita Markowska, chief financial economist at Jefferies, tells me that there are a number of factors driving higher prices – including supply chain and commodity pressures – but that wages are the dominant driver of future inflation. “Rising wages are causing a lot of inflation. Supply chain problems are expected to ease next year, but we still have this employment problem.”
She said the only way to reach the Fed’s 2% inflation target is to see wage growth slow sharply.
Great predictions: The core unemployment rate for August is expected to remain unchanged this month at 3.5%, close to a 50-year low. Consensus estimates also called for 300,000 new jobs to be created, and average hourly earnings are expected to rise 0.4% month over month.
Last month’s jobs report blew expectations out of the water. More than half a million jobs were created, the largest number in five months. Average hourly earnings grew half a percent month over month.
In the weeks after the July jobs announcement, Fed officials took a more hawkish stance, warning that rate hikes would continue until inflation fell and warning of the coming economic “pain.”
After the Fed’s last meeting in July, where the central bank raised interest rates by 75 basis points, Powell told me he was closely watching wage growth. His ultimate goal, he said, is to reduce inflation and achieve “a decline that does not require a significant increase in unemployment.” This is only achieved by slowing wage growth.
China needs Wall Street
The US and China have finally come to an agreement on one of the biggest problems in global business: how to audit Chinese companies listed on US stock exchanges.
Some basic information: US regulations state that all companies in American exchanges They must comply with requests to open their books in full by 2024 or they will be banned from trading in the United States. This is a problem for China. The state has been reluctant to allow foreign regulators to inspect accounting firms, citing security concerns. The tension has already led to some Chinese companies pulling back from US markets.
Alibaba, whose shares have been traded on the New York Stock Exchange since 2014, outlined plans this summer to upgrade its Hong Kong listing to basic status, which it expects to be by the end of this year.
The impending audit deadline has led to a slowdown in stock issuances. Initial public offerings (IPOs) of Chinese companies in the US have fallen significantly, reaching eight so far this year compared to 37 in the same period last year. The value of those deals also shrunk. So far in 2022, companies have raised just $332 million through IPOs in US markets, down from about $13 billion last year.
the odds: This deal is just the first step in formalizing the audit protocol between the United States and China. It remains unclear whether China will actually comply. Last week, the head of the Securities and Exchange Commission, Gary Gensler, warned that companies could still face expulsion if US authorities did not have access to their papers. “The evidence will be in the candy,” he said in a statement.
Analysts at Goldman Sachs said this week that there is still a 50% chance of a delisting of Chinese stocks.
Either way, this is unlikely to have a significant impact on the other contentious issues standing between the United States and China. But this means that China needs Wall Street. Drew Bernstein, co-chair of Marcum Asia CPA, an accounting firm for Asia said companies looking to enter the US market.
Anyone want to buy Zoom?
Now, the era of back-to-work is trapping its next victim: Zoom.
He may have trouble finding a suitor.
This leaves four more possibilities.
For now, Zoom remains silent about any acquisition possibilities, or it may just be on mute.
US jobs report for August jobs at 8:30 a.m. ET.
Coming next week: US markets are closed on Monday for Labor Day. We’ll take a break that day and see you here on Tuesday.
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