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What If More Rapid Wage Increases Are Actually Evidence Of Deflationary Conditions?

Jeffrey Snider profile picture
Jeffrey Snider


  • Economists have been forced to the rudimentary distillation of economic aggregates, chief among these being the unemployment rate. Not really the rate itself, rather what is supposed to happen once that number falls low "enough."
  • Should the labor market truly tighten, then competition for workers heats up the market-clearing rate desperate companies would have to pay for them.
  • Wage data isn’t agreeing with the low unemployment rate, in what’s historically deflationary fashion.

Wage Increase

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Since the Federal Reserve is not in the money business, their recent hawkish shift toward an increasingly anti-inflationary stance is a twisted and convoluted case of subjective interpretation. Inflation is money, and if the Fed was a central

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Jeffrey Snider profile picture
As Head of Global Investment Research for Alhambra Investment Partners, Jeff spearheads the investment research efforts while providing close contact to Alhambra’s client base. Jeff joined Atlantic Capital Management, Inc., in Buffalo, NY, as an intern while completing studies at Canisius College. After graduating in 1996 with a Bachelor’s degree in Finance, Jeff took over the operations of that firm while adding to the portfolio management and stock research process. In 2000, Jeff moved to West Palm Beach to join Tom Nolan with Atlantic Capital Management of Florida, Inc. During the early part of the 2000′s he began to develop the research capability that ACM is known for. As part of the portfolio management team, Jeff was an integral part in growing ACM and building the comprehensive research/management services, and then turning that investment research into outstanding investment performance. As part of that research effort, Jeff authored and published numerous in-depth investment reports that ran contrary to established opinion. In the nearly year and a half run-up to the panic in 2008, Jeff analyzed and reported on the deteriorating state of the economy and markets. In early 2009, while conventional wisdom focused on near-perpetual gloom, his next series of reports provided insight into the formative ending process of the economic contraction and a comprehensive review of factors that were leading to the market’s resurrection. In 2012, after the merger between ACM and Alhambra Investment Partners, Jeff came on board Alhambra as Head of Global Investment Research. Currently, Jeff is published nationally at RealClearMarkets, ZeroHedge, Minyanville and Yahoo!Finance. Jeff holds a FINRA Series 65 Investment Advisor License.

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Comments (9)

I always learn something reading your articles. Thank You! It is looking more and more like Q2 and beyond is heading into a deflationary environment. I am enjoying the early year gains and loading up on defensive assets.
edaskew profile picture
There have always been a lot of people who work but aren't counted as workers, because they are paid in cash, don't file tax returns, and continue to collect benefits as if they did no work. Now, more and more people have figured out how to do that. They make plenty of money, it just isn't accounted for by the government. Obviously, people must have money if they are able to pay higher prices for goods, and retailers can't keep their shelves stocked.
Obviously unbelievable!
Salmo trutta profile picture
re: "Under the classical theory, the wage rate is determined by the marginal productivity of labour" (the change in output that results from employing an added unit of labor).

In other words: "the level of output and actual work performed had declined more than the reduction in headcounts"
JHHAlpha profile picture
Any analysis of potential fed behavior, in contrast with fed signaling about its future behavior, such as talking up tapering and interest rate hikes, is incomplete if not also considering the enormous federal (and state) debt. Increasing interest rates will obviously make debt servicing more difficult, and create pressures to raise income tax rates--potentially generating an economic death spiral. In light of the debt situation, I think the fed will be reduced merely to talking about raising rates and tapering, but not taking any substantive action, especially if the markets start to crash if and when the fed does start to implement its rhetoric. My guess is that after any rate hike and a negative market reaction, the fed will reverse course, and long rates will decline.
bluescorpion0 profile picture
so is command and control economy, meddling in free enterprise deflationary or inflationary?
@scorpion.north I would argue inflationary as it lowers productivity in the economy
bluescorpion0 profile picture
Makes sense. although one could argue stuff like vaccine mandates increases efficiency, but reduces travel efficiency and global supply chain efficiency.
@scorpion.north Vaccine mandates is an interesting one to look at. It's a double edged sword as yes it *should* increase productivity in businesses that enforce it (even though vaccinated are still getting infected), but it decreases productivity when accounting for all the employees who refuse the vaccine and are no longer working for that company. JOLTS data showing tons of quits still which to me leads to lower productivity as it takes awhile for new hire employees at a company to find their footing and reach max productivity
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