“More robust wage growth in the U.S. may be just around the corner,” according to Chris Haverland, a global asset-allocation strategist with Wells Fargo & Co.’s investment institute.
The attached chart illustrates how Haverland reached this conclusion, presented two days ago in a report. He compared the unemployment rate with the year-over-year percentage change in average hourly earnings, as compiled by the Labor Department.
Earnings growth slowed to 1.6 percent in February, the lowest reading since November 2012, from a peak of 2.5 percent in August. The decline occurred even though joblessness dropped to an almost seven-year low of 5.5 percent.
“As the U.S. unemployment rate falls further, employee earnings potential should improve,” wrote Haverland, based in Winston-Salem, North Carolina. The strategist added that wage growth accelerated in the two previous economic expansions as the jobless rate approached and fell below 5 percent.
Last month’s rate was unchanged from February, according to the average estimate of 78 economists in a Bloomberg survey. The March report is scheduled for release tomorrow at 8:30 a.m. New York time.
The potential for faster pay growth bolsters the argument for buying shares of larger U.S. companies, Haverland wrote. He recommended that investors favor cyclical stocks, which tend to be most affected by the economy’s performance.