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When the latest US jobs report goes live on Friday, investors and economists will be closely watching the number of jobs added in June.
What’s happening: Employers are expected to have created 700,000 positions, pushing the unemployment rate down to 5.7%. That would be a strong reading, even though the United States will still be down 6.9 million jobs compared with February 2020.
But another piece of data could prove even more important: the rise in average hourly earnings.
Most investors agree that the biggest risk to markets right now is inflation, which could force central banks including the Federal Reserve to begin withdrawing crisis-era support for the economy that’s helped lift assets like stocks.
For now, the consensus among policymakers is higher inflation readings will prove transitory, and that prices will fall once the recovery stabilizes and supply chain snarls ease. They point to relatively muted increases in wages to date as a key reason not to get too concerned.
But wait: Businesses in industries like hospitality and transportation are still struggling to hire workers. As of June 15, US LinkedIn job postings for the transportation and logistics industry were up 119% compared with February 2020. During the same period, openings in the recreation and travel industry industry rose 29%.
And there are signs this phenomenon is starting to push wages up.
“While overall wage growth remains moderate, wages in lower-paid sectors have risen quickly in recent months amidst widespread reports of worker shortages,” strategists at Goldman Sachs told clients this week.
On one hand, that’s a good thing. For years, worker compensation has been stagnant while corporate profits have soared. With companies such as Chipotle (CMG), McDonald’s (MCD) and Olive Garden owner Darden Restaurants (DRI) hiking wages to recruit or retain employees, it’s easy to argue that’s overdue.
But it could make policymakers at the Fed nervous, especially if companies start to pass on higher labor costs by raising the prices of their products.
“Rising wages mean that the transitory period of inflationary pressures could extend into 2022,” Nigel Bolton, co-chief investment officer of BlackRock Fundamental Equities, said in a recent research note.
What to watch: In May, average hourly earnings rose by 15 cents to $30.33 as companies tried to get employees in the door. Wages are expected to have risen another 0.4% in June to $30.45 per hour.
If wage growth is even stronger than that, markets could take notice — if only because they think the Fed will, too.
Biden wins global support for massive tax overhaul
The United States has won international backing for its plan to overhaul the global system for taxing companies, a huge step toward simplifying a complex web of rules long exploited by big corporations.
The latest: Countries including India, China and Switzerland have agreed to a broad framework for reform set out by the Organization for Economic Cooperation and Development. The Paris-based group said Thursday that 130 countries and jurisdictions were on board, representing more than 90% of global economic output.
US Treasury Secretary Janet Yellen called the agreement a “historic day for economic diplomacy.” Yellen secured the support of the Group of Seven nations, including Canada, France, Japan, Germany, Italy and the United Kingdom, last month.
“For decades, the United States has participated in a self-defeating international tax competition, lowering our corporate tax rates only to watch other nations lower theirs in response,” Yellen said in a statement. That “race to the bottom” is now “one step closer to coming to an end,” she continued.
Details, details: The OECD’s framework includes a global minimum tax of at least 15% on multinational companies. The plan also holds that the biggest companies should pay tax where they generate sales and earn profits, and not just where they have a physical presence — a move that could have major ramifications for top tech companies like Google and Amazon.
Establishing a global minimum tax has been a top priority for President Joe Biden, who wants to boost government revenue to help offset the costs of his proposed infrastructure package.
The hard work isn’t over yet. Negotiations remain ongoing, with technical details to be hashed out between now and October. And countries would still need to pass reforms at home to transform any deal into law.
But the agreement removes significant uncertainty ahead of a meeting of Group of 20 finance ministers later this month.
That said: Not everyone is on board. Notably absent from the list of signatories is Ireland, whose low-tax regime has been essential to drawing in top tech firms. Barbados and Hungary also did not sign on to the deal.
Robinhood opens its books and shows it’s cashing in
When a hot tech startup is about to make its Wall Street debut, it’s always a notable event. Even more so when the company is actually making money.
This just in: Robinhood, which unveiled paperwork for its initial public offering on Thursday, said it grew sales to nearly $959 million last year, up 245% from the prior year. It also managed to turn a $7.5 million profit, after booking an almost $107 million loss in 2019.
The meme stock frenzy that’s taken off this year is clearly giving Robinhood a boost. At the end of March, the app had 18 million accounts on its platform, up from 7.2 million one year earlier. Total revenue in the first quarter came in $522 million, a 309% jump over the same period in 2020.
The question, then, is if investors think rapid growth will continue as Robinhood gets increasing attention from regulators.
The release of the documents comes just one day after the company was ordered to pay a record $70 million fine by the Financial Industrial Regulatory Authority, or FINRA, for “systemic supervisory failures” and giving investors “false or misleading information.” Robinhood also disclosed Thursday that it settled a wrongful death lawsuit filed by the family of a 20-year-old trader who died by suicide after seeing a negative account balance of $730,000.
But if excitement among everyday investors continues apace, Robinhood stands to benefit.
Watch this space: During the first quarter, Robinhood earned 17% of its total revenue from crypto transactions. More than a third of that came from trades of meme cryptocurrency dogecoin.
Up next
The US jobs report for June arrives at 8:30 a.m. ET.
Also today: OPEC and allies are still debating whether to ramp up oil production after the United Arab Emirates objected to a deal between Saudi Arabia and Russia.
Coming up: US markets are closed Monday for Independence Day. To our American friends — stay safe and happy grilling.
