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Thought of the week

Invest in Your Future

Thought of the week

The US December jobs report was strong on many fronts. In particular, data released showed wages for production and nonsupervisory workers increased by 3.3% year-over-year, the highest level since April 2009. Inflation data released last Friday showed headline consumer prices moderating to 1.9% and core prices steady at 2.2% year-over-year. The cooling in headline inflation is, in large part, due to the roughly 70% peak-to-trough decline in oil prices seen in the fourth quarter and, while oil prices have rebounded slightly, absent a significant move higher from current levels, there are few reasons to assume inflation will rise substantially in the months ahead. While it is particularly unusual this late in an economic expansion to have robust job gains alongside moderating inflation, this dynamic allowed real wages to rise a healthy 1.4% year-over-year in December. As shown in this week’s chart, rising real wages tend to coincide with rising consumer spending. As the labor market continues to tighten and inflation remains at bay, this should support consumption growth through the first half of 2019. Moreover, calmer inflation gives the Fed the ability to be more flexible in its approach to monetary policy. Given this, we anticipate one rate hike from the Fed this year, keeping the risk of recession relatively low in 2019.

Source: JP Morgan Asset Management, January 2019