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A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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Why the Recent Rise in Wage Inflation May Not be Good


The recent rise in wage inflation is being used to support the case for rate hikes – including by Fed Chairman Janet Yellen, who now sees these “tentative signs of stronger wage growth” as a harbinger of inflation.



The chart shows that year-over-year (yoy) growth in nominal average hourly earnings (AHE) has indeed risen to a five-and-a-half-year high (blue line). But, as in 2014, it has risen only because growth in hours (gold line) has fallen faster this year than pay growth (purple line). We would not call this “a hopeful sign” for wage earners.

This recalls Sherlock Holmes’s dictum that “there is nothing more deceptive than an obvious fact.”

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Shifting Patterns in Recessions and Recoveries

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Simple Math: ½% + ½% = 1%

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With productivity growth and potential labor force growth both averaging ½% a year, trend real GDP growth is converging to 1% a year. More