GA Trade May-Jun interactive - page 7

E C O N O M I S T ’ S C O R N E R
I
t is not a secret that the U.S.
economy is heavily geared towards
services. Service industries (including
the government) account for 80% of
U.S. GDP and even 86% of jobs.
Moreover, private households spend
themajority of their income on
services. If we leave out food and
energy, service products have a
weight of 75% in the consumption
basket. It is, therefore, not surprising
that labor costs are the single-most
important driver of consumer price
inflation in the U.S.
Until now, wage pressure has remained
very subdued. The Employment Cost
Index, our preferred labor cost gauge,
has been rising at amere 2%over the
past four quarters.While that is
slightly faster than itwas inmid-2009
(+1½%), it is still a far cry from the
3½% increase seenduring the previous
boom. Themain reason for the slow
wage increases is the sizeable slack in
the labormarket. There are currently
10.5millionofficiallyunemployed
Americans , while another 6million
are out of the labor force but currently
want a job, and7.2millionpeople are
workingpart-time for economic
reasons. This huge excess supplyof
labor should keepwage pressure low
for the foreseeable future – so the
theorygoes.
I think, however, that in the current
environment the total number of
unemployed is less useful for fore-
casting inflation than it normally is.
The reason lies in the large number of
long-term unemployed. As they are
gradually losing their skills (or
possess skills that the labormarket
did not need in the first place), they
exert less downward pressure on
wages than the short-term unem-
ployed. And the rate of short-term
unemployed has declined significantly
over the past several months. It is
now onlymarginally higher than it
was at its cyclical troughs reached
during previous boom periods. In line
with that, the Federal Reserve’s Beige
Book has repeatedly highlighted
shortages of specialized skilled labor,
while theNational Federation of
Independent Business’ small business
survey shows that companies are
facing a lack of qualified applicants.
As a result, businesses have started to
raiseworker compensation. Given the
tight historical correlation between
these surveys and the Employment
Cost Index, I expect wage pressure to
rise before long.
Does that imply soaring inflation
rates?No!What it does do, however,
is dispel the last remaining concerns
over any deflationary threats. As the
core inflation rate approaches the
Federal Reserve’s target rate of 2%,
one important reason for the ultra-
accommodativemonetary policywill
cease to exist. Consequently, rate
hikesmight come faster thanfinancial
markets currently anticipate.
n
AdidasNamesMarkKing
President of Adidas America
Adidas namedMark King, CEO of
TaylorMade-adidas Golf since 2003,
president of Adidas America, the
German sports footwear and apparel
company’s NorthAmerican head-
quarters in Portland. He replaces
Patrik Nilsson, whowill move to his
native Sweden to become chief
executive of fashion brand GANT.
King, 54, will be in charge of all
Adidas and Reebok operations in the
NorthAmericanmarket and report
directly to RolandAuschel, member
of the Executive Board of adidas AG,
responsible for Global Sales, the
company said in a news release.
DOTGmbH Investing
$4.5million in Columbia
City Facility
DOT GmbH, amedical coating
technology provider, is investing
$4.5million to lease, renovate and
equip a building in Columbia
City’s Blue River Industrial Park.
DOTAmerica Inc., which opened in
October, is creating up to 20 new
high-wage jobs in the next two years
as it ramps up operations.
Visituson thewebat
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>>
Dr. Harm Bandholz, CFA
Chief U.S. Economist
UniCredit Research
>>
>>
WatchOut for RisingWage Pressure!
GermanAmerican TradeMay/June 2014
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