Wages May Be a Victim of Structural Headwinds: Koesterich

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Sept. 4 (Bloomberg) -- Russ Koesterich, chief investment strategist at BlackRock Global, talks about the drag of wage growth on the U.S. economy and why the employment report is so important to stocks and investors. He speaks on “In The Loop.”

It basically says what?

More of the same in the jobs market.

We are joined with blackrock.

You opine about the jobs market yourself.

You say there is slack.

The question is, when do we get out of that and what does that mean for the markets?

We are seeing an improvement in the labor market.

Payrolls have printed over 2000. what is missing are primarily wages.

We have seen very little wage growth.

Unfortunately, this may have to do more with structural headwinds fanned cyclical recovery.

Don't you think there is a chance of a structural shift?

That we won't see inflation pickup likely have in the past?

This is one reason we look at all the economic data.

Most of the jobs data has been better.

Household consumption and retail sales has been missing.

It goes exactly to your point.

If wage growth does not pick up, zimmer -- consumers will draw further in their savings or they borrow more, retail sales are going to disappoint.

We have seen that even as the overall economy has gotten stronger.

I am puzzled sometimes why we focus -- the jobs to permit is important, but why it is is -- it is important.

We have seen a huge rally even in the jobs market here and why does it matter?

A couple of reasons tear the first of which is that consumption is still the biggest part of the economy.

It represents almost 70% of economic activity.

Getting raises, that means a stronger economy.

The second reason, and this goes a long way to explaining in the last five years, is the fed watches the jobs market.

As the jobs market goes, it will give a very good indication of what the fed is thinking and when they will start interest rates.

Five -- it is interesting if you take a look at the vix.

It has done nothing.

Under 13. when we get this kind of squishy economic data, we are not seeing a huge wage recovery there.

Fraud activity is not picking up.

What gives?

The simple answer is the fed.

If you look at volatility, it is very interesting.

It normally follows monetary conditions.

With interest rates at zero, very tight, you would expect volatility to be low.

This is exactly what happens.

My guess is, we get into an environment next year where the fed gets closer to raising rates, where at least the margins, they begin to tighten a bit.

That is where the volatility regime starts to change and it may not spike have to those levels in 2008 or 2009, we hope.

At the very least, it is likely to normalize back in the high teens or 20's. the fed is considering raising interest rates.

The effect opposite story this morning, mario draghi, the head of european central bank cutting interest rates yet again.

A big surprise.

Also announcing a simple asset backed program.

It looks a lot like a stepping stone to quantitative easing -- quantitative easing.

That was exactly what was done to feel this.

Why the u.s. instead of europe?

It depends on which asset you are speaking of.

European stocks have rallied today.

Where you will see the biggest advances is on the currency.

Advances in the fed and the ecb and the bank of japan.

The dollar will continue to strengthen for the remainder of the year ended 2015. thank you so much.

The global chief investment strategist at blackrock.

Thank you to olivia sterns and alix steel.

As olivia was just talking about, i want to get over to guy

This text has been automatically generated. It may not be 100% accurate.


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