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February 5 2018

Wages Go Up and Stocks Go Down

by Rachel DiCarlo Currie

Last week’s U.S. jobs report showed stronger-than-expected employment growth, as well as the largest annual increase in average hourly earnings — a 2.9 percent jump from January 2017 to January 2018 — since the end of the Great Recession. Yet it also triggered a major sell-off in the stock market.

The explanation, as I noted in this space, is that investors now believe the Federal Reserve will raise interest rates faster than they’d previously anticipated. Thus, the Dow Jones Industrial Average fell by 666 points on Friday and by more than 400 points (and counting) earlier today.

All of this provides a timely reminder that what’s good for the real economy is not always good for the stock market, and vice versa. As New York Times economic-policy correspondent Binyamin Applebaum wrote on Twitter, “The stock market is falling because wages are rising. This is good economic news. The stock market is not the economy. It’s not even a proxy for the economy. Wages, on the other hand . . .”

For more on the uptick in wage growth, read AEI scholar Michael Strain.

Independent Women's Forum is an educational 501(c)(3) dedicated to developing and advancing policies that aren’t just well intended, but actually enhance people’s freedom, choices, and opportunities. IWF is the sister organization of the Independent Women’s Voice.​
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