Employment costs surge most since 2008, fed raises eyebrow wolf street electricity flow direction

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Total compensation costs for civilian workers — which include wages, salaries, and benefits of workers in the private sector and in state and local governments — increased 2.7% seasonally adjusted, over the past 12 months ending in March 2018, up from a 2.4% increase in the prior quarter, the Bureau of Labor Statistics reported this morning. This was the fastest 12-month increase since Q3 2008:

Wages and salaries account for about 70% of total compensation costs. Benefits account for the remaining 30%. As we’ll see in a moment, the surge was mostly caused by wages and salaries in the private sector. Benefit cost increases, while always too much, were in the middle of the range over the past decade. And wages and salaries for workers at state and local governments inched up less than inflation.

Employee benefits in the private sector rose 2.6% compared to a year ago. The sub-category of healthcare costs rose only 1.5% over the 12-month period. This chart of private-sector benefit costs shows that the year-over-year increase in Q1 was smack-dab in the middle of the range of the past 10 years:

At state and local governments, it looked a little less promising for workers. Total compensation costs rose 2.2% year-over-year, with benefit costs surging 3%. But wages and salaries rising only 1.8%, roughly in line with the past three years, and below the rate of inflation (CPI):

The surge in private sector employment costs – particularly of wages and salaries – has figured high on the Fed’s inflation-worry list, based on the classic theory that rising wages and salaries will help create demand from consumers that have more money to spend which will help push up inflation; and this additional demand will enable employers to raise their prices to maintain their profit margins as their compensation costs rise, now that consumers are making more money. That would the beginning of the circularity that the Fed frets about.

This type of data is precisely what confirms the Fed’s more hawkish bent. And it comes on top of the other factors the Fed has been mentioning in past pronouncements, such as “elevated” asset prices, the “search for yield,” and the risks to “financial stability” that they pose in a highly leveraged financial system. But it’s not the type of data, at least not yet, that will make the Fed deviate from its plan to move “gradually” so that the economy has plenty of time — years, as the first rate hike was over two years ago — to adjust to higher rates and tighter financial conditions.

Bonds, junk bonds, spreads, commercial real estate, “leveraged loans,” over-leveraged companies… all get named as risks to the banks. This is why “gradual” tightening will continue for a long time. Read… Now Even a Fed Dove Homes in on the “Everything Bubble”

As they dim and the quality of light being produced is no longer good or they burn out, I replace those with LED type light bulbs. Better quality light and even more efficient than the CFC’s. The price is cheaper than I paid for the CFC’s and if they actually last as long as they are supposed to, I’ll never have to replace them as I probably won’t be around!!

You can also replace old appliances with newer more efficient ones that use less water and electricity, but you’ll pay a high price for the efficiency which hopefully will offset some of the cost. Replace when the old appliance dies. Bosch makes some really nice, efficient, and high quality washing machines and dishwashers.

I don’t know what kind of split system A/C’s inverters you Yanks have, but here in Oz the ones they sell (or used to sell) have a little heater inside them which keeps the system warm when turned on, but not in use. I’ve tried to find out how much these systems consume, but the manufacturer wouldn’t provide the data and it isn’t in the manual. My guess based on looking at the meter is that the multiple systems we have would use between 1 and 2 kilowatts a day depending on the outside temps. Not many people know about this or seem to care.

One of the people at the clubs was complaining last month about his last electricity bill – A$1300 for 3 months and there are only two people in that house. The neighbours across the street from us had those kinds of bills 5 or 6 years ago (Three teenage kids in the house!!). I wonder how much they pay now with the price having more than doubled in the last ten years.

Solar Panels? Here in Oz the price of systems are still subsidized a little by the government. The cost of a cheap system has fallen through the roof too. You can get a system with 6 kw of panels and a 5kw inverter with installation for around $A5000. Ten years ago 1.5kw of panels and a 2kw inverter would set you back A$3000.

The massive liquidity surge post GFC was soaked up in asset bubbles. Combine this with extensive arbitration of the worlds labour markets you ended up with a collapse of the velocity of money. Those folks with money didn’t spend and those who have a very high propensity to consume were squeezed. This led to populist rumblings.

Logically things have to reverse to stabilize. The dangerously inflated asset bubbles have to be deflated gradually to avoid systemic risk to bank capital. Liquidity has to be drained from the system to do this. Those folks with a high propensity to consume have to have access to the remaining liquidity in order to increase the velocity of money to offset the decline in liquidity overall. This is much more appropriately gained through wage and salary increases than through increased destructive redistribution policies.

This rebalancing takes time and is not without its hazards. There may be a case for tariffs by the reserve currency provider to help mitigate labour arbitrage and provide fiscial relief. There would appear to be enough egregious abuses built up to justify such an initiative.