Real Time Economics: Is a Tight Labor Market Really, Finally Generating Higher Wages?

This is the web version of the WSJ’s economic newsletter. You can sign up for daily delivery here. Good morning! Today we look at wage gains in the U.S., political trouble for the euro, Trump administration trade tactics, the country with the power to move oil prices, and the vast but shallow gig economy. WHERE’S MY RAISE? The unemployment rate fell below 4% for the first time in almost two decades last month. So where’s the wage growth? WSJ labor markets reporter Eric Morath tells us to look under the surface, where there’s evidence pressure is building. While overall pay gains decelerated in recent months, hourly earnings for nonmanagers have quietly improved. In April they matched their best increase since 2010. They also equaled overall wage gains, a potentially significant change. Wage growth for managers had outstripped rank-and-file workers since late 2014. That suggests that instead of broad labor-market firms with rising stock values and solid profits were rewarding leadership. But if wages for nonsupervisors rise at a faster pace, that may indicate low unemployment is finally forcing businesses to bid up wages for all levels of employees. The May jobs report is due out Friday at 8:30 a.m. ET.
Do you think U.S. wages are heading for a breakout? Write to Jeffrey Sparshott at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest. WHAT TO WATCH TODAY We’ll get a good peek at the economy this week. Friday’s U.S. jobs report is the highlight, but there’s also an update on U.S. GDP, the latest on Chinese manufacturing, eurozone inflation, OECD forecasts, U.S.-EU trade talks, the Fed’s preferred inflation gauge, an update on U.S. manufacturing, and other key data. Here’s Tuesday’s slate: The S&P/Case-Shiller home price index for March is out at 9 a.m. ET. The 20-city measure is expected to rise 6.7%, not far off the prior month’s 6.8% pace. The Conference Board’s consumer confidence index for May, out at 10 a.m. ET, is expected to inch down to 128.0 from 128.7 a month earlier. That’s still an elevated reading, reflecting a broadly upbeat assessment of the economy.
The Dallas Fed manufacturing survey for May, out at 10:30 a.m. ET, is expected to rise to 23.2  from 21.8. Bank of Japan governor Haruhiko Kuroda speaks at a BOJ event in Tokyo at 8 p.m. ET. TOP STORIES MAMMA MIA! Here’s some worrisome news for Europe and the euro: Italy is heading toward a political crisis. President Sergio Mattarella blocked the formation of a euroskeptic government, reviving longstanding European fears that Italy could trigger a new existential crisis in the eurozone. The antiestablishment 5 Star Movement, the country’s largest single party, and the hard-right League party have both flirted openly with the idea of pulling Italy from the common currency, Giovanni Legorano and Marcus Walker report. Some results so far: European bonds and stocks are down and the euro fell to the lowest level since November 2017 against the dollar. (Also worth noting: Spain’s parliament is set to vote Friday whether to oust Prime Minister Mariano Rajoy and replace his center-right government with one led by the center-left Socialist Party.)
OLD COUNTRY U.S.-European Union trade friction has gotten a bit lost amid U.S.-China back-and-forth, and the latest geopolitical developments (hello, North Korea). But the sides are closing in on a Friday deadline—that’s when President Trump’s temporary waivers on steel and aluminum tariffs expire. To head off a potential trade war between the allies, the EU’s top trade official will meet U.S. counterparts in Paris on Wednesday in a last-ditch effort to secure permanent waivers, Emre Peker reports. European officials have been scrambling to address Mr. Trump’s demands amid deepening policy differences on issues ranging from trade to foreign policy and defense. Europe’s big push: Let’s work together against China’s unfair commercial practices and growing economic might. TEST PATTERN As President Donald Trump considers new tariffs on imported vehicles and pursues a deal with China to avoid a trade war, economists and business leaders see a pattern emerging: Open aggressively, then settle for incremental concessions on trade. It might be a negotiating tactic—make strong demands to win future concessions—or else the administration lacks plans to follow through, Josh Zumbrun writes. There are plenty of signs that Mr. Trump will succeed if all he really wants is to reduce U.S. trade deficits with some major trading partners. But more fundamental restructurings may be out of grasp. HOW TO TAME YOUR OIL MARKET The U.S. is producing more oil than ever, but when it comes to pulling the strings of the market, Saudi Arabia is still king. Saudi Arabia’s clout stems from an abundance of spare capacity. The Kingdom is capable of producing as much as 12 million barrels a day, though it has kept its output much lower due to a deal with fellow OPEC members. Its ability to open or close those taps almost overnight enables Riyadh to influence price movements more than any other producer. In the latest sign of Saudi Arabia’s sway, energy minister Khalid al-Falih said Friday that OPEC and its allies are likely to open the taps to address rising prices. That news sent global prices falling nearly 3%, while U.S. crude prices promptly shed 4%—the biggest one-day percentage drop since July, Alison Sider and Georgi Kantchev report.
CHART OF THE DAY: THE GIG ECONOMY The gig economy is huge! Nearly one-third of all adults were independent workers or on short-term contracts last year, the Federal Reserve said in a recent report. Ah, but wait: “For over three-fourths of gig workers, these activities account for 10% or less of their family income.” So, really, the gig economy is mostly a part-time job that generates little bit of extra cash. That can be quite important to individuals, but it’s still a pretty small part of the economy.
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WHAT ELSE WE’RE READING Is the internet responsible for low inflation? Online efficiency certainly seems to contribute. “We document 1.3 percentage points per year lower inflation online than in the [consumer price index] for the same categories,” Austan Goolsbee and Peter Klenow write in a National Bureau of Economic Research working paper. When accounting for the entry of new products and the exit of old products, online inflation is an additional 1.5 to 2.5 percentage points lower. Silicon Valley and the City of London should give up some of their massive gains from globalization to ensure workers in cities like Detroit and Hull do not continue to fall behind. But… “Addressing the hardship increasingly faced by these workers requires a combination of redistribution and regulation” on an international scale, the London School of Economics’s Swati Dhingra writes in The Economist. That includes generating resources from different international jurisdictions, enforcing worker protections and channeling resources toward policies that offset the deskilling of workers. UP NEXT: WEDNESDAY German employment numbers are out at 3:55 a.m. ET. The Organization for Economic Cooperation and Development holds its annual ministerial council in Paris on Wednesday. French President Emmanuel Macron gives the keynote speech. U.S. Commerce Secretary Wilbur Ross is on a panel on trade. Mr. Ross and other trade officials are expected to meet with EU trade chief Cecilia Malmstrom on the sidelines of the event. Germany’s consumer price index for May is out at 8 a.m. ET. The ADP employment report for May, out at 8:15 a.m. ET, is expected to show a net gain of 184,000 jobs from the prior month. U.S. gross domestic product for the first quarter is out at 8:30 a.m. ET. Economists expect no revisions to the earlier reading of 2.3%. The Bank of Canada releases a policy statement at 10 a.m. ET. The Federal Reserve releases its beige book at 2 p.m. ET. China releases its official gauge of factory activity for May (release time is Wednesday night in the U.S., Thursday morning in China). Production likely remained robust, but new orders may have been disrupted by ongoing trade tensions.

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