Overlooked in last week’s employment report
on February 8, 2012 in Employment 16 Comments
Average hourly earnings reached a new all-time low on a y/y basis of 1.5%.
One of the strongest historical arguments as to why deflation is unlikely is downward nominal wage rigidity.
i.e., its easier to negotiate wage growth from say 4% to 3%, then 1% to 0%, or certainly a wage cut.
But, high unemployment and high duration of unemployment will test that theory.
A move much lower from here will stoke the fears of those Fed members worried about deflation.
Of course the flip side is that this is quite likely a positive for corporate profits.