Eagle Daily Investor

Stronger Wages and the Effects of a Border Tax

Last Friday’s February employment data release was all the rage for market participants, and this all but guaranteed that the Fed will raise interest rates this week.

The non-farm payrolls increase and the unemployment rate stole the headline show in the newspapers. But really, it was the increase in average hourly earnings that provided the “stop the music” moment.

Average hourly earnings increased 0.2%, leaving them up 2.8% year over year. That is the key takeaway from this report, followed closely by the encouraging understanding that the labor market is strengthening, which is aiding the prospects for stronger economic growth.

Employment generally is regarded as a lagging indicator, yet last Friday’s report was the coincident indicator that the stock market was seeking to corroborate its leading view that the Federal Reserve will be raising the fed funds rate soon, and for the right economic reasons.

The good news for the U.S. job market comes at an interesting time. President Trump is weighing the virtues of a “border adjustment tax” sponsored by the House Republicans. High-profile companies like Ford, Caterpillar and Apple are being wooed by Trump to stay home with new capital investment as he seeks to repatriate jobs and foreign cash reserves under the threat of new import taxes. Trump wants to stop the flow of outsourcing work to foreign-owned service sectors like manager call centers, medical back office operations, insurance claims, IT help desks, legal services and an array of other service industries that are not associated with cars, tractors, smartphones and other finished goods. His ‘America First” agenda thus becomes much trickier to apply.

To read the rest of this article about border taxes and stronger wages, please click here.


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