Morgan Stanley: "Wage Growth Is Leveling Off, May Be Slowing"

Tyler Durden's picture

While Friday's headline payrolls print - the lowest since May - was disappointing even to the biggest economic optimists, many found refuge in the sharp drop in the unemployment rate, which ticked lower to 4.5%, the lowest print in a decade. And yet there was a problem: with the unemployment rate tumbling, at least in theory indicating even less slack in the labor market, wage growth barely hit consensus estimates. Instead, if indeed the growth narrative is accurate, and if more people were employed, wages should be rising. However, it was this weakest link of the entire reflation/recovery narrative that disappointed once again.

In fact, it was even worse: as Morgan Stanley's Robert Rosener write overnight, "wage pressures in March were supported almost entirely by a massive jump in earnings in Professional & Business Services. Outside of this bright spot, wages in other industries were muted, and suggests wage growth in a broad range of industries may be leveling off, or even slowing."

As Rossener further notes, to describe wage pressures in March as 'spotty' may be an understatement. The 0.19%M gain in average hourly earnings was supported almost entirely by a massive jump in the Professional & Business Services industry. Outside of this one bright spot, wage pressures in other industries were surprisingly muted (Exhibit 1), and suggests wage growth in a broad range of industries may be leveling off or even slowing.

According to MS, the 0.92% sequential gain in average hourly earnings in Professional & Business Services was the second largest monthly increase on record, and this accounted for nearly all of the increase in aggregate average hourly earnings. In other words, average hourly earnings would have been roughly flat on the month were it not for the outsized increase in earnings for Professional & Business Services. To be sure, the bounce in wage growth for this job category was decidedly welcome: As a generally high-paying industry, stronger wage growth in Professional & Business Services can go a long way in supporting stronger aggregate outcomes for average hourly earnings.

The key question from here is whether or not the upside in March can be sustained, or if it's just noise.

Yet while the silver lining in professional services will be closely watched, a bigger question is what happens to wages in all the other key indudtries, where as noted above, March saw substantial weakness.

Here, Rosener writes that "consistent with signs of a recent softening in wage pressures in a number of industries, our wage growth diffusion index has shown a meaningful narrowing in the breadth of wage pressures across industries in recent months—only 38.5% of industries are now showing above-trend rates of wage growth, down from 46.2% in February and a high of 61.5% in August 2016."

Some more observations from Morgan Stanley:

  • The jump in average hourly earnings in Professional & Business Services helped boost wage growth in the broader high-wage industry segment as a result, with average hourly earnings in high-wage industries rising to 3.0%Y in March from 2.7%Y in February (Exhibit 5).
  • Wage growth in middle-wage industries fell sharply in March to 2.1%Y vs 2.6%Y in February (Exhibit 6).
  • Wage growth in low-wage industries ticked down to 2.6%Y from 2.8%Y, although smoothing through the volatility shows a steady trend for wage growth in low-wage industries around 2.6%Y (Exhibit 7).
  • Consistent with fewer workers experiencing wage gains, the median rate of wage growth across industries fell notably in March. Median wage growth fell to 2.5%Y in March from 2.8% (Exhibit 8)

* * *

Taking all that, and the bigger jobs picture in mind, what does the labor market mean for the Fed's June decision? The answer: it depends on whether you see the glass as half empty or half full.

The optimist says, "Well, the unemployment rate continues to fall and the Fed has been expecting the pace of job gains to slow. At 163k per month over the past 6 months, shown in Exhibit 2, the economy has been adding jobs well above the pace needed to keep the unemployment rate moving lower." The labor market is tightening, right?

The pessimist says, "Despite continued strength in the labor market, signs of labor market tightness are few and far between. Yes, the unemployment rate is falling, but core measures of wage growth remain anemic. Just look at the year-on-year rate of wage growth among production and non-supervisory workers, as shown in Exhibit 3. At 2.3% Y/Y in March, growth in wages of these workers was lower than it was in the year ending early 2014. This just means NAIRU (Natural Rate of Unemployment) is lower."

Morgan Stanely's summary:

"Even though NAIRU could be (much) lower, we don't think the FOMC consensus will let that affect their decision on rates for now. One weak headline payroll number is also unlikely to dissuade the consensus from believing that continued gradual rate hikes remain appropriate. However, if the April or May payroll number disappoints, that could change.... we'll be watching carefully for clues as to whether small business hiring slows in the wake of inaction by the Trump administration and Republican-controlled Congress. So we'll be watching with interest the NFIB Small Business Optimism index released on Tuesday, April 11."

What this means for markets and the economy: the Trump "reflation" rally, having already withered across many market indicators, has finally moved to the economy and actual wages, where it increasingly appears to have been nothing more than a mirage.

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corporatewhore's picture

Is this wage growth by working two jobs to equal one half of what one made in 2007?

CPL's picture

It's okay, the AH9N7 will remove all the workers in six more months.  In a year there will be no one left to wipe their asses to make anything, or drive cars, or purchase homes, or raise crops, or program computers, or make a big government deal.  Because they'll all be dead, except the rich and powerful that will be eating cat food from a can and they'll watch their grandkids suck dick for the sniff of a candy wrapper.

corporatewhore's picture

thanks for alerting me on this one.  I have to look this one up.  At least I had a good run.  Sounds like a steven king novel.

CPL's picture

They made it in a lab to sell vaccine, sort of got away from them since the last registered patten on the virus was H6N2.  Throw in some good old fukishima radiation, mother nature and you end up with a monster virus that is tearing ass across the planet that has no vaccine to sell because this one was built out in the wild with a lab borne pathogen.  They literally made their own extinction for a couple of bucks during the bush administration.

It should also cause some severe disruptions in supply lines to the point a lot of retailers, manufacturing and farming will no longer be available.  This one has big teeth and it's fast from the reports I've read on the dark net about it.  Also means the kabuki sleeper theatre will be ending soon as it's rather hard to run a truman show without staff.  Expectations is they all die from starvation in their isolated bubbles since none of them know how to work.

Oh well, sucks to be everyone else.

earleflorida's picture

it's gotta be tough for the billionaires to go back living on just a few hundred million dollars

GRDguy's picture

Right. It's gotta be tough lyin' and stealin' enough just to keep the place maintained.  So they sell.

DingleBarryObummer's picture

Moar money for profesional services, so like, lawyers?   'murica.

Donald Trump: Mirage Man

meditate_vigorously's picture

Adjusted for government reported inflation and then adjusted for actual inflation, we find both measure show wages have been decreasing since the 70s, when women entered the labor force en mass.

Ink Pusher's picture

Wage growth? What a load of bullshit.

Wage decline is the reality.

I am making less than I was in the 80's and so is everyone else .

Insurance and Pensions are mostly scams.



Last of the Middle Class's picture

Robots don't need wage growth.

Monico Sailer's picture

What has happened to Zerohedge. There are so many obvious liberals on here now.  There needs to be a way to filter this B.S. 

Monico Sailer's picture

Morgan Stanley is one of the biggest liberal brockerages there are. Goldman is more powerful but at least they have ties on both sides. 

ZH needs to do some more coverage of the analysts who left Goldman and formed Shepwave. 


Their market calls have been right on target as usual. Thanks ZH.



Monico Sailer's picture

Here is their blog entry from yestrday.  Their performance this past week was seriously insane on target. 


ShepWave IMPORTANT Updates for Monday Published. VERY CRITICAL TECHNICALS!
Posted: 4/7/2017 18:02 EST



Equities, as well as gold and oil, have been extremely predictable and therefore profitable, and should continue to be. The predictability of these markets is not as difficult as most would have you believe.

It is time to turn off the CNBC.

If you have been following along with ShepWave analysis you are aware of the fact that the markets continue to be predictable and profitable.

The key is to maintain objectivity. These two updates for Monday show the Weekly and Daily time frame analysis for the major US equity indexes as well as Crude Oil, Gold and the VIX. Please read notes and analysis carefully.

Now is not the time to tie into the emotionalism of most of the financial pundits (such as on CNBC). The technical analysis such as ShepWave has been providing keeps producing market predictions that keep profitability for traders and investors.

Log In at for Monday's (Two) Important ShepWave Updates.



Click Here  and Click Here to see recent time stamped charts with markets calls. These are periodically changed to show the wide range of vehicles that ShepWave covers.




P Christmas Carole's picture

Good analyst.  They left Goldman because Goldman is so corrupt. But that is nothing that anyone who is a trader on ZH doensn't already know. 

P Christmas Carole's picture

Good analyst.  They left Goldman because Goldman is so corrupt. But that is nothing that anyone who is a trader on ZH doensn't already know. 

Irvingm's picture

The real traders on here who are making money already use them.  Most people on here are trolls though.  ZH is a magnet for wack jobs these days. 

DoctOZ's picture

I grant you they have a solid record. But there are no investors left on ZH.


They all went broke listening to Zerohedge.



OckhamsRazr's picture

Their work is spot on. Especially for traders who trade daily or hold positions for a few weeks.  Let's face it the long term trend as SW calls it has not changed several years.  But I know that they will be the one analyst will know when it has actually changed. 

Dr.Carl's picture

ZH does a good job of presenting all sides of the news.  MS is definitely corupt but ZH also covers that. SW is an actual analyst and they do a good job.  There is a distinct difference. SW has followers from decades. ZH is newer and has a different audience basically. 

DingleBarryObummer's picture

^^^^^ Above posts are all SCHLONGWAVE spam.  Don't bother.

RudolPHDs's picture

And you are just a BIG PERVERT. Disgusting.

hardmedicine's picture






Stormtrooper's picture

Part timers don't have much bargaining power on wages.

Gods's picture

Wage growth? I have not seen a good pay year in 12 years

Salmo trutta's picture

The welfare of the DFIs is dependent upon the welfare of the NBFIs (where savings are put back to work). Forcing savings back through the non-banks reduces bad debt, increases bankable opportunities (the loan pie), and increases the commercial bank’s profits.

From the standpoint of the system, the monetary savings practices of the public are reflected in the velocity of their deposits and not in their volume. Whether the public saves, dis-saves, chooses to hold their savings in the commercial banks or to transfer them to a non-bank will not, per se, alter the total assets or liabilities of the commercial banks, nor alter the forms of these assets and liabilities.  The commercial banks could continue to lend even if the non-bank public ceased to save altogether.

The earning assets held by the commercial banks, from a system standpoint, are not the result of the growth of time/savings deposits. The sequence is not from time/savings deposits to earning assets, rather the sequence is from earning assets, and new demand deposits, these two come into being simultaneously, and from “old” demand deposits (which the public has saved) to time deposits. Never are the DFIs intermediaries in the savings-investment process.

  And a direct comparison of return on assets with cost of savings is only valid for non-bank conduits. It is not a valid comparison for DFIs. Time/savings deposits are not a source of loan-funds, rather they are the indirect consequence of prior bank credit creation (as all savings originate and are ensconced and impounded within the DFIs). The source of time deposits is almost exclusively demand deposits, directly or indirectly via the currency route, or thru the DFIs undivided profits' accounts – and the source of demand deposits can largely be accounted for by the expansion of bank credit. An increase in time/savings accounts depletes DDs by the same amount.

Unless savings are expeditiously activated through non-bank conduits (the funds never leave the system), a contractionary economic drag and decay is perpetually exerted. This is the direct cause of stagflation and secular strangulation. The remuneration of IBDDs exacerbates this phenomenon. The 1966 S&L credit crunch is the economic prologue and paradigm.

The upshot will be a prolonged and pronounced lowering of real-rates of interest (a protracted flattening of the yield curve) and a deceleration and eventual decline in incomes.

DoctOZ's picture




Salmo trutta's picture

No, are you’re seriously retarded Mr. articulate? OZ (what a moniker).  The U.S. Golden Era in economics was where pooled savings were expeditiously put back to work via non-bank conduits as incentivized by the FSLIC.  In contrast, c. 1965, every time a commercial bank makes loans to or buys securities from the non-bank public it creates new money – demand deposits – somewhere in the system.  Thus, more and more savings have become “bottled up” within the confines of the CB system.

Take the “Marshmallow Test”: (1) banks create new money, and incongruously (2) banks loan out the savings that are placed with them.

F. Scott Fitzgerald: “The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.”

You have to retain the cognitive dissonance capacity, like Walter Isaacson described Albert Einstein’s ability: to hold two thoughts in your mind simultaneously – “to be puzzled when they conflicted, and to marvel when he could smell an underlying unity”.

John Maynard Keynes couldn’t do it:

In "The General Theory of Employment, Interest and Money", John Maynard Keynes’ opus ", pg. 81 (New York: Harcourt, Brace and Co.), gives the impression that a commercial bank is an intermediary type of financial institution (non-bank), serving to join the saver with the borrower when he states that it is an “optical illusion” to assume that “a depositor & his bank can somehow contrive between them to perform an operation by which savings can disappear into the banking system so that they are lost to investment, or, contrariwise, that the banking system can make it possible for investment to occur, to which no savings corresponds.”

In almost every instance in which Keynes wrote the term bank in the General Theory, it is necessary to substitute the term non-bank in order to make his statement correct.

See e-mail response from senior economist and V.P. FRB-STL:
Re: Savings are not a source of "financing" for the commercial bankers
Dan Thornton
Thu 3/9, 2:47 PMYou
See the graph below.
Daniel L. Thornton
D.L. Thornton Economics LLC
Never are the commercial banks intermediaries (conduits between savers and borrowers), in the savings-investment process. I.e., altogether we have to invalidate the “Austrian Theory of The Business Cycle”.

This is the source of the pervasive error that characterizes the sui generis Keynesian economics (that there's no difference between money and liquid assets), viz., the Gurley-Shaw thesis, the elimination of Reg. Q ceilings, the DIDMCA of March 31st, 1980, the Garn-St. Germain Depository Institutions Act of 1982, the Financial Services Regulatory Relief Act of 2006, the Emergency Economic Stabilization Act of 2008, sec. 128. “acceleration of the effective date for payment of interest on reserves”, etc.
Even worse:

"The 2006 Financial Services Regulatory Relief Act gives the Fed permission to pay interest on reserves (IOR). The current IOR rate 0.5% would be higher than "the general level of short-term interest rates" which is imposed in the Law. George Selgin at the Cato Institute brought up the issue:

"[T] Fed couldn't raise its rates without breaking the law…Instead of paying banks more to hoard reserves, [the Fed] can tighten money…by selling off some of its trillion dollars in assets…Whether events will warrant tightening before the year is out is anybody's guess. But if the Fed chooses to tighten, it should at least do it legally." ("A Legal Barrier to Higher Interest Rates," The Wall Street Journal, Sept. 28, p. A13. Italics are mine.)"