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CAMS Weekly View from the Corner – Week ending 1/4/2019

January 7, 2019

………..goes the employment market!

This past Friday the employment results were released for the month of December and they blew past even the most optimistic expectations.  The consensus expectation was for 180,000 new jobs to be created while the actual result came in at 312,000 new jobs in December.

In addition the two previous employment reports (October and November) were revised higher reflecting an additional 58,000 jobs created in those months than what was previously released.  (Revisions are customary as more data becomes available.)  In total for the October – December period the average monthly employment gains registered a solid 254,000 jobs.  It gets better.

Sprinkled through our Weekly View’s in the previous couple of years we have occasionally peeked at wage growth rates and the necessity to see them trend upward so the citizenry at large would experience wage levels that are putting them ahead of inflation.  (A multi-decade storyline in the U.S. is that wage rates have struggled to do so and with this the citizenry at large has been challenged to “keep up” with price trends.)

The December employment report reflected Average Hourly Earnings grew by 3.2% compared to a year ago.  This type of strength is becoming a trend.  Just a few months ago overall market participants were frightened that Average Earnings would go over the 2.8% level and in so doing would create a spike in interest rates out of fear that it could lead to significant inflation pressures.

Interestingly we have seen this wage growth rate accelerate while inflation pressures have reduced and market based interest rates – notably the 10 Year Treasury Interest Rate – has not spiked upward but rather has moved considerably lower.

The above chart displays the aforementioned Average Hourly Earnings growth rate dating back over a decade.  Each bar within the chart reflects a calendar quarter.  With this four bars equals one year.

The consistent trend as depicted by the red arrow is clear to see.  In addition, via this longer term chart we can see the significance of attaining the wage growth rate of over 3%.  We haven’t seen these levels in a decade and when we did, per the chart, it was in a downtrend and volatile.

We simply need to see more of this consistent strength going forward.  Wage growth rates are an excellent gauge when measuring the true vibrancy of the employment landscape.  From a lemonade stand up to a major corporation nobody wants to pay more than they have to when sourcing supplies or labor.

Upward trending wage growth rates tell us demand for employees is strong and with this the need exists to bid up for their services.  This is part of the process that spurs Capital Investment and innovation from employers which in-turn creates an upward spiral of real wealth for society as a whole.

Welcome to year 2019!  We will see you next week.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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