> Yoshie Furuhashi wrote:
>
>>US Treasuries up on signs of muted wage inflation
>
> THat was yesterday. This morning the BLS reported that average hourly
> wages were up 0.5% in October, more than twice the recent trend (0.2% over
> the previous six months). This has the inflation hawks up in arms,
> worrying out wage inflation and excessively full employment.
>
> But on balance the jobs report kinda sucked. Employment was up just
> 56,000, and few sectors did better than the average. The labor force
> declined, which is why the unemployment rate declined by 0.1 point,
>
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(On that subject, Greenspan reminded Congress yesterday of the link between low inflation and restrained wage growth in the OECD countries and the integration over the past two decades of the FSU, China, and the Third World countries into the world economy. He says this situation will "persist for some time" before it wanes - presumably as labour costs narrow between the rich countries and the poor ones.)
By GREG IP Staff Reporter of THE WALL STREET JOURNAL November 4, 2005; Page A2
The integration of China, India and the former Soviet bloc into the world trading system is helping to hold down inflation but at some point, that effect will fade, Federal Reserve Chairman Alan Greenspan said.
His remarks were part of an optimistic assessment of the economy delivered to the Joint Economic Committee of Congress yesterday. While hurricanes Katrina, Rita and Wilma will "exert a drag on employment and production in the near term...the economic fundamentals remain firm, and the U.S. economy appears to retain important forward momentum," he said. "More uncertainty, however, surrounds the outlook for inflation."
On Tuesday, the Fed raised its target for short-term interest rates to 4% from 3.75%, a 12th consecutive quarter-point increase, and suggested it would raise rates further to prevent energy prices from fueling a general surge in inflation. Mr. Greenspan's remarks yesterday reinforced that anti-inflation message, leading markets to expect even more monetary tightening in the months ahead.
Mr. Greenspan said the addition of more than 100 million educated workers from former Soviet countries, large segments of China's 750-million strong work force, and workers from India "would approximately double the overall supply of labor once all these workers become fully engaged in competitive world markets," a development that "has restrained the rise of unit labor costs in much of the world and hence has helped to contain inflation."
But while these forces "may well persist for some time," he said, the process and its contribution to inflation control will wane and that "will need to be monitored carefully by the world's central banks."
Mr. Greenspan acknowledged that the process also is restraining wages of manufacturing workers. Indeed, he cited Fed staff research that suggests wage inequality is growing dramatically in the U.S., with the 20% of workers who are managers and supervisors enjoying wage gains of 10% a year, while the rest, mainly production workers, see gains of less than 4% a year, barely keeping up with inflation.
With Mr. Greenspan's term at the Fed ending Jan. 31, his testimony yesterday may be one of his last appearances before Congress while representing the central bank. Ben Bernanke, nominated to succeed him, is an advocate of entrenching Mr. Greenspan's record on low inflation with an explicit numerical target for inflation.
Committee Chairman Rep. Jim Saxton, a New Jersey Republican and one of Congress's few vocal proponents of an inflation target, noted that inflation in recent years has been running at 1% to 2%, excluding energy and food, as measured by the Fed's preferred index. Mr. Bernanke previously has referred to that range as his own "comfort zone."
Mr. Greenspan acknowledged the Fed has come to define its goal of price stability as keeping inflation roughly in that range: "It appears to be a range which is really quite conducive to economic growth and the prosperities that are associated with that." But he added that it isn't the case "that somehow we had this chart up there and every time the inflation got close to the top, we tightened it, and every time it got down to the bottom, we eased. That's not the way policy is run."