Fed’s Daly: The Market Is Wrong About A Hump in 2023 Fed Rates
Posted: October 6, 2022 Filed under: commodities, Economy, iron ore, Monetary Policy, oil, Salaries | Tags: BHP, BHP Group, Fed Fund Futures, Federal Reserve, Mary Daly, Monetary Policy, real wages, UGA, United States Gasoline Fund 4 CommentsThe Federal Reserve board governors continue to stay on message, reminding the market over and over about its serious intention to fight inflation. San Francisco President Mary Daly has been particularly articulate on the Fed’s plan and what likely lies ahead. In an interview with Bloomberg Finance today, Daly informed financial markets that they are “wrong” to project what the interviewr called a “hump” in rate expectations. This hump is a peak sometime in 2023 with rate cuts to follow soon after. The current view from CME FedWatch has rates peaking from the February through June, 2023 meetings with a rate cut in July.
Daly’s steadfast perspective is important to remember every time the stock market rallies in anticipation of peak inflation and/or a “Fed pivot.” Indeed, Daly warned that the Fed needs to be prepared for inflation to be more persistent than expected. For context, Daly was one who was unwilling to predict peak inflation ahead of what turned out to be the “CPI shocker” that delivered a surprise of higher core inflation. Part of Daly’s persistence comes from what she and the Fed see as inflation’s greater potential for economic harm than the short-term consequences of normalizing monetary policy. Daly noted that over two years real wages have fallen 9%. She even shared an anecdote of a worker who told her about how he “loses” money when he goes to buy something with his earnings (an anecdote that speaks to nominal wages failing to keep up with nominal increases in prices).
Other interesting nuggets from the interview:
- Rates are probably now around the neutral rate, and the Fed needs to get slightly restrictive.
- The length of time rates stay neutral (or slightly restrictive) is more important than the specific level.
- 50% of today’s inflation is driven by demand (thus justifying the Fed’s desire to get slightly above neutral), 50% from supply.
- Daly refused to take the bait on the question of whether the Fed was purposely trying to induce a recession, trying to force losses on the stock market, or intent on hiking rates until something breaks.
- Daly insisted the Fed is forward-looking and recognizes lagging indicators of inflation.
- Daly pushed back on the notion the Fed needs to coordinate with global central banks. She insisted that the Fed must stick to its domestic dual mandate.
While the signs a few months ago were clear from commodity prices that the Fed’s actions were impacting inflation, the recent strength in oil threatens to rekindle inflation fears from the average person. For example, gas prices look like they are already done declining. The United States Gasoline Fund, LP (UGA) broke out today. UGA looks like it double-bottomed in September.
The recent downtrend in United States Gasoline Fund, LP (UGA) came to an end this week with a powerful breakout above 50 and 200DMA resistance.
Similarly, diversified commodities producer BHP Group (BHP) looks like it is holding a bottom in place since late last year.
BHP Group (BHP) has so far held its lows from a year ago. While upside may be limited, BHP also looks like it is done going down for now.
If these bottoms are indicative of what is ahead, then any soft readings in the near-term inflation numbers could be, well, transitory… (tongue-in-cheek intended!)
Be careful out there!
Full disclosure: long BHP
Wages on the rise in China
Posted: July 16, 2012 Filed under: China, Electronics, Jobs, Salaries | Tags: AAPL, Apple Inc., wages 2 CommentsSeveral reports have been published this year documenting rising wages in China. In “Wage Rises in China May Ease Slowdown“, the WSJ notes that these increases may help lower the impact of a slowdown in China as workers have more money to purchase goods (although it is not clear to me how much this helps if a lot of the money goes into buying foreign goods as the article suggests could happen).
The current and projected jumps in labor costs are dramatic:
“…wage income for urban households rose 13% year-on-year in the first half, and average monthly income for migrant workers rose 14.9%, according to data from China’s National Bureau of Statistics. A labor ministry survey of 91 cities in the first quarter showed demand for workers outstripping supply by a record amount, pointing to low unemployment…
…At current rates, China’s private-sector manufacturing wages will double from their 2011 levels by 2015, and triple by 2017, eroding competitiveness and denting the exports that have played a key part in China’s early growth.”
These wage hikes are coming off low levels. For example, as of February of this year, Hon Hai Precision Industry Co, the company that manufactures Apple (AAPL) iPads, reported a 10% increase in base salary for its factory workers to 2,200 yuan ($345) per month.
Moreover, the supply of new, young workers will decrease thanks to China’s one-child policy:
“In 2005, there were 120.7 million Chinese people aged 15-19, according to United Nations estimates. By 2010, that had fallen to 105.3 million, and by 2015 it is expected to dip to 94.9 million.”
Finally the government is forcing the minimum wage and benefits higher:
“China is committed to sharply raising minimum wages, which puts pressure on employers to raise salaries for higher skilled workers. Beijing also has increased requirements for severance payments, which discourages layoffs unless business drops severely.”
It will be interesting to watch what happens to China’s economy as its manufacturing competitiveness declines slowly but surely with the increase in wages.
U.S. workers missing out on the “reflation celebration”
Posted: October 11, 2011 Filed under: China, Economy, Jobs, Salaries | Tags: income, savings, wages Leave a commentSeveral times on these pages, I have “celebrated” various confirmations of reflation as indicated by the soaring salaries of CEOs, largely through stock-based compensation. On October 10th, the New York Times printed the results of a study that confirmed what many of us already knew from informal observation: the wages of U.S. workers have fallen at a faster rate than they did during the recession. This “deflation” is working in the exact reverse of the trend for those who who hire these workers and run their companies! From “Recession Officially Over, U.S. Incomes Kept Falling” (NY Times via CNBC):
“Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent, to $49,909, according to a study by two former Census Bureau officials. During the recession — from December 2007 to June 2009 — household income fell 3.2 percent.”
This is a sobering statistic that has potentially dire implications for the economy in general. Compare this situation to that in China where an on-going study in the New York Times concludes that China’s government has propped up its banks and large corporations at the expense of Chinese workers (see “As Its Economy Sprints Ahead, China’s People Are Left Behind.”):
“Under an economic system that favors state-run banks and companies over wage earners, the government keeps the interest rate on savings accounts so artificially low that it cannot keep pace with China’s rising inflation. At the same time, other factors in which the government plays a role — a weak social safety net, depressed wages and soaring home prices — create a hoarding impulse that compels many people to keep saving anyway, against an uncertain future.
Indeed, economists say this nation’s decade of remarkable economic growth, led by exports and government investment in big projects like China’s high-speed rail network, has to a great extent been underwritten by the household savings — not the spending — of the country’s 1.3 billion people.
This system, which some experts refer to as state capitalism, depends on the transfer of wealth from Chinese households to state-run banks, government-backed corporations and the affluent few who are well enough connected to benefit from the arrangement.”
Neither system, in the U.S. or China, appear stable to me. With China dependent on the income (or rising debt) of U.S. workers to keep its exports alive, these systems of increasing inequity actually start to look increasingly unstable. I will be monitoring these processes even more closely going forward. They are certainly deflationary, not inflationary.
Production costs may have the last laugh on The Simpsons
Posted: October 6, 2011 Filed under: Entertainment, Jobs, Salaries | Tags: cartoons, labor dispute, production costs, television show, The Simpsons Leave a commentThe venerable cartoon series “The Simpsons” has a strong following that has kept the show alive for a record 23 seasons. However, NPR reports hat rising production costs threaten to deliver the last laugh on The Simpsons. 20th Century Fox Television wants the show’s actors to take a 45% pay cut on the $8M a year they currently earn. A $4.4M salary sure sounds fantastic to 99% of us, but in wages and income, relativity counts. These actors have certainly built lifestyles to match their salaries and a sudden and drastic cut could actually cause at least a few of them some hardships (hopefully just in the short-term).
If negotiation go poorly, the actors will be left with zero pay. Hopefully, they will still get a cut of the treasure trove that awaits in syndication. NPR states that “…one analyst noted that ending the show would make it worth even more in syndication — perhaps $1.5 million for each of the show’s 506 episodes, which would bring in something like $750 million.” This means the studio actually has a large incentive to end the series rather than continue to pay high production costs to keep the show going.
For more, see or listen to “Do Rising Costs Have ‘The Simpsons’ On The Ropes?“
Reflation celebration for corporate executives in Arizona and Georgia
Posted: June 5, 2011 Filed under: Economy, Jobs, Salaries | Tags: CEO, Salaries, wages Leave a commentThe spotlight is shining bright these days on executive pay. I have cited several stories regarding the tremendous increases in executive pay that occurred in 2010 that resoundingly reversed (and then some) stagnation and sometimes declines in executive pay in 2009. (See for example, “Pay rises 13% for CEOs at Canada’s top 100 public companies” and “CEOs recover all the pay they lost during the recession” or review articles under the category “Salaries“).
This weekend, I noted two state-based stories on executive pay that demonstrated how dramatic a turn-around has occurred in the pay for specific executives.
In “Lucrative paydays for corporate chiefs“, the Atlanta-Journal Constitution reports:
“Here’s one measure of just how good it was: $232.9 million.
That’s the total compensation that the chief executives at Georgia’s 25 most-valuable public companies took home last year, according to The Atlanta Journal-Constitution’s review of the annual disclosures required by the Securities and Exchange Commission…
Here’s another measure of just how lucrative 2010 was: 29 percent. That’s the average pay raise the 25 executives saw last year.”
In “Arizona CEO’s median compensation surged 48% in 2010“, The Arizona Republic reports:
“Sparked by rising profits and rebounding stock prices, the median compensation for chief executive officers and chairmen at Arizona-based public companies surged 48 percent in 2010, hitting a statewide record of $1.54 million.
Plus, hefty pay packages were shared more broadly by other top officials at 43 corporations based in the state. Some 74 senior executives below the CEO level earned at least $750,000, up from 63 who earned that much the year before.”
In both cases, compensation swelled partially thanks to a strong rebound in the stock market, meaning that corporate executives have greatly benefited from the reflation generated by economic stimulus and/or monetary easing. As I have mentioned in previous posts, strong corporate profits have supported all forms of equity-based wealth and effectively beat back the ghosts of deflation in 2010.
Of course, the huge irony is that poor employment reports and stagnating personal income data tell a different story. For example, after Friday’s awful jobs report and the on-going dire news coming from the housing market, you would be excused for assuming the entire country had dipped back into a poverty-stricken recession. Such is definitely not the case for the big winners of 2010.
Pay rises 13% for CEOs at Canada’s top 100 public companies
Posted: May 30, 2011 Filed under: Canada, Jobs, Salaries | Tags: CEO, performance-based pay, Salaries, wages 1 CommentIn “Back in the green: CEO pay jumps 13 per cent“, Globe and Mail reports that CEOs at Canada’s top 100 public companies received average pay raises of 13% in 2010. This comes on the heels of dismal pay performance in 2009 and 2010 where pay was essentially flat. 2010’s pay hikes is similar to the double-digit pay gains Canada’s CEO typically experienced before the recession.
The article includes an interesting discussion of “performance share units” which calibrates performance-based pay to the company’s relative performance to its peers. This method prevents pay hikes from general market forces that the CEO does not control, like the rising price of oil.
CEOs recover all the pay they lost during the recession
Posted: May 7, 2011 Filed under: Economy, Salaries | Tags: CEO, unemployment, wages 1 CommentAmerica’s CEOs have been rewarded for performance that has driven corporate profits to record levels.
“The typical pay package for the head of a company in the Standard & Poor’s 500 was $9 million in 2010, according to an analysis by The Associated Press using data provided by Equilar, an executive compensation research firm. That was 24 percent higher than a year earlier, reversing two years of declines.”
“Executives were showered with more pay of all types — salaries, bonuses, stock, options and perks. The biggest gains came in cash bonuses: Two-thirds of executives got a bigger one than they had in 2009, some more than three times as big.”
This situation presents an odd dichotomy. The housing market remains moribund and likely double-dipped, the unemployment rate and jobless situation has shown little improvement in many, many months. Yet, corporate profits and CEO pay could not be better. Even as the Federal Reserve seeks to keep monetary policy loose and accomodative, I suspect the current momentum will continue as companies continue to make hay with what they’ve got: more jobless profits…
As is said when the Fed prints money, it has to go somewhere. We have found one more resting spot for that fresh cash!
Compensation in High Tech Inflating Labor Costs
Posted: April 12, 2011 Filed under: High Tech, Jobs, Salaries | Tags: GOOG, Google, wages Leave a commentIn “Salaries at Apple, Google a big investor concern – Commentary: Higher pay, benefit costs driving up expenses,” Marketwatch writer John Shinal laments that:
“Given that every full-time employee gets health insurance and other benefits that make up anywhere from a quarter to half their overall compensation, and that health-care costs are rising in the double-digit percentages, it’s safe to assume that U.S. tech companies are seeing employee costs rise in the double figures, as an annual percentage.”
In 2009, wages in high tech went up 5-10%. So Shinal’s assessment is consistent with a labor market that was relatively tight even at the height of the recession and beginning of the recovery.
Financial industry continues reflation with increase in salary of Goldman’s CEO
Posted: January 31, 2011 Filed under: Banks, Salaries | Tags: banks, Goldman Sachs, GS, wages Leave a commentThe reflation of the financial industry continues. Last week, Citigroup’s CEO Vikram Pandit got his salary restored from the recession-related, punitive $1 level. He is now earning $1.75M per year. Goldman Sachs has joined the reflation and then some. Goldman’s CEO Lloyd C. Blankfein got a 2011 pay package including a 233% pay raise to $2M. Other executives were also granted generous increases in their pay packages. For more details see “Goldman Sachs Gives Blankfein a Big Raise.”
While this revival of largess may never trickle down toward the masses of unemployed and underpaid, it is once again difficult to imagine that deflation is an imminent threat when bankers are being restored to previous glory!
Citigroup CEO Pandit sees his salary (re)inflate
Posted: January 22, 2011 Filed under: Banks, Salaries | Tags: C, Citigroup, Vikram Pandit 1 CommentHopefully, by now, you have been disabused of the notion that deflation remains a serious and imminent threat for the U.S. (or global) economy. Certainly, Vikram Pandit, Citigroup CEO, knows all about inflation’s positive benefits.
After reporting an incredible $10.6 billion in profits last year, Pandit was rewarded with a 75% pay hike. His base salary went from a mere $1 to a more appealing $1.75M. Pandit froze his salary at $1 in response to the severe recession that almost wiped out the bank before the U.S. government bailed it out.
More details in Bloomberg: “Citigroup Boosts Pandit’s Base Salary to $1.75 Million From $1.” This article also references the bonuses paid out to several other Citigroup executives.
Party like it’s 1999!
Posted: October 28, 2010 Filed under: Salaries, Technology 1 CommentIf Google wants to provide free servants to its employees, that’s fine by me. (Hey, I’m a happy GOOG shareholder.)
But we here at Inflation Watch would be remiss if we didn’t notice that something interesting is going on in the Silicon Valley labor market.
As Gawker reports:
Tech companies in recent months have reported a shortage of programmers as they snap up more and more talent. Google and Facebook are competing so fiercely over some engineers that half-million-dollar retention bonuses are not unheard of. And they’re not the only ones vying for talent; flush with venture capital, Twitter is on a hiring spree, as are Amazon, Foursquare, Zynga and other startups.
Hiring sprees? Free servants? Half-million dollar retention bonuses? Doesn’t sound like a deflationary spiral to me.
Costs of Manufacturing in China Likely Heading Up Soon
Posted: July 6, 2010 Filed under: China, Retail, Salaries | Tags: electronics, manufacturing Leave a commentThe New York Time reports in “Supply Chain for iPhone Highlights Costs in China” that manufacturing costs in China are likely heading upward soon:
“Soaring labor costs caused by worker shortages and unrest, a strengthening Chinese currency that makes exports more expensive, and inflation and rising housing costs are all threatening to sharply increase the cost of making devices like notebook computers, digital cameras and smartphones…
…Wages in China have risen by more than 50 percent since 2005, analysts say, and this year many factories, under pressure from local governments and workers who feel they have been underpaid for too long, have raised wages by an extra 20 to 30 percent.”
Manufacturers in China are already moving production away from the traditional electronic hub in Shenzhen to lower-cost regions in the country.
The article goes on to reveal that the lowest cost components on the iPhone come from the manufacturing and assembly of the various electronic components. This low-margin business is getting tougher and tougher and growing out of favor:
“…there is growing skepticism about China’s manufacturing model after years of pressing workers to toil six or seven days a week, 10 to 12 hours a day.”
Expect soon to pay more for Chinese-made goods at a store near you.
College Faculty Not Seeing the Benefits of Tuition Inflation
Posted: April 13, 2010 Filed under: Higher ed, Salaries | Tags: Salaries Leave a commentTuition at colleges and universities are soaring (click here for story about UC schools), but, apparently, faculty are not receiving the benefits, at least not lately. The New York Times reports on the annual salary survey conducted by the American Association of University Professors:
“Over all, salaries for this academic year are 1.2 percent higher than last year, the smallest increase recorded in the survey’s 50 years — and well below the 2.7 percent inflation rate from December 2008 to December 2009.
The survey found that average salary levels actually decreased this academic year at a third of colleges and universities, compared with 9 percent that reported lower average salaries in the previous two surveys. Private and church-related universities reported shrinking average salaries more often than public institutions.”
Of course this leaves us to wonder where all the money is going from tuition hikes. The article notes: “Generally, administrative salaries at colleges and universities have been increasing far more quickly than pay for faculty members.”
WSJ: some firms move gingerly to rescind salary cuts
Posted: March 3, 2010 Filed under: Salaries | Tags: pay cuts, salary cuts Leave a commentThe WSJ’s Paul Glader reports that some firms are cautiously rescinding salaary cuts imposed last year:
Hard-drive maker Seagate Technology Inc. and New York Times Co. are among the concerns restoring full salaries for some but not all employees. Hewlett-Packard Co. granted one-time bonuses after cutting pay, though it may not permanently reverse the cuts.
FedEx Corp. is resuming some raises, but from levels that were reduced by pay cuts. Computer-storage giant EMC Corp. fully restored pay in January only after monitoring financial performance for six months.
The tentative approach is part of the reason that wage growth is muted even as the economy starts to rebound. Revenue growth remains shaky, so CEOs are reluctant to increase costs. With unemployment at 9.7%, executives are also betting they can keep employees motivated and productive without boosting wages. In the past 12 months, average hourly earnings have risen 2%; in January, earnings rose 0.2%.
Inflation Watch has been covering this trend for awhile.
401K matching is back
Posted: February 18, 2010 Filed under: Salaries | Tags: 401K 1 CommentEmployees who took a hit on their savings last year might finally be in for some welcome news: Companies are stepping up efforts to help them save more for retirement.
Of companies that suspended or reduced 401(k) match programs, 80% planned to restore them this year, according to a survey conducted by Hewitt Associates, a global human resources consulting firm.
This could be a precursor to wage increases.
Wage drop is steepest since 1990; whither the American consumer?
Posted: January 16, 2010 Filed under: Salaries | Tags: consumer spending, wages Leave a commentAP reports that the spending power of American families is being squeezed:
Workers saw their inflation-adjusted weekly wages fall 1.6 percent last year – the sharpest drop since 1990 – even as consumer prices rose only modestly.
No one can accuse Inflation Watch of being complacent about inflation. However, as long as wages continue to stagnate, it seems fairly obvious that inflation on the whole will remain subdued.
The news about declining wages comes even as we’re seeing ample evidence of rising prices for some consumer staples (e.g., food, gas, health insurance, parking, cars, utilities). In short, U.S. consumers are paying more and earning less.
In the good ol’ days, consumers could sustain their standard of living by simply borrowing more. But credit card companies have been cutting credit limits and home equity loans are no longer available to many homeowners.
In short, the lending spigot has been turned off.
It’s really hard to see how spending by the American consumer is going to hold up if this scenario continues.
More than 21,000 Washington state employees to receive pay increase
Posted: December 17, 2009 Filed under: Salaries | Tags: state employees Leave a commentMore than 21,000 state employees could get pay raises of up to 5 percent in the next year, despite Gov. Chris Gregoire’s proposal to cut $1.7 billion from public schools, health care and other programs to solve a budget shortfall.The $83 million worth of raises represents the “step” or longevity-pay increase that almost one-third of the state’s general-government workers are entitled to earn in yearly increments, typically over their first six years in a job.
The step pay is separate from cost-of-living raises, which state lawmakers this year agreed to suspend for two years for state workers, and college and public school employees
FedEx to resume salary increases
Posted: December 17, 2009 Filed under: Salaries | Tags: FedEx Leave a commentWSJ:
“FedEx Corp. reported a 30% decline in earnings for its fiscal second quarter, but nevertheless said it would resume salary increases and some retirement-plan contributions for employees, citing ‘modestly improving economic conditions and business performance.'”
Haverty Furniture Companies Partially Reverses Executive Pay Cuts
Posted: December 4, 2009 Filed under: Salaries | Tags: Haverty Furniture Companies, Salaries Leave a commentThe rollback of recession-driven, executive pay cuts continues. In a December 3 SEC filing, Haverty Furniture Companies, Inc. announced that 2010 will bring a rollback of most of the 20% voluntary pay cut instituted in May, 2009 for the CFO and CEO. The new salaries will only be “…3% below the 2008 levels and are commensurate with the base salaries received for fiscal year 2007.” The CEO’s salary will go from $372K to $450K. The CFO’s salary will increase from $272K to $330K.
Happy Holidays!
AMD reverses prior reductions in executive salaries
Posted: November 20, 2009 Filed under: Salaries | Tags: Advanced Micro Devices, AMD Leave a commentIn an SEC filing, AMD disclosed that it has now reversed all prior salary reductions. See below:
“As previously reported, on January 16, 2009, the Compensation Committee (the “Compensation Committee”) of the Board of Directors of Advanced Micro Devices, Inc. (the “Company”) approved across-the-board reductions to annual base salaries, including the annual base salaries of all named executive officers, effective as of February 1, 2009.
Effective November 16, 2009, the Compensation Committee approved the reversal of these reductions commencing on November 23, 2009.
As a result, the reinstated annual base salaries of the named executive officers will be the following: (i) Mr. Derrick Meyer, the Company’s President and Chief Executive Officer, reinstated from $720,000 to $900,000; (ii) Mr. Robert Rivet, the Company’s Executive Vice President, Chief Operations and Administrative Officer, reinstated from $552,500 to $650,000; and (iii) Mr. Thomas McCoy, the Company’s Executive Vice President, Legal, Corporate and Public Affairs, reinstated from $462,400 to $544,000. Because annual bonus targets are a percentage of annual base salary, the across-the-board increases, in effect, would also increase fiscal 2009 annual bonus payments, if any. “
Inflation Watch 