Morning Report: Why hasn't there been better wage growth?

Vital Statistics:

	Last	Change
S&P Futures	2474.5	2.8
Eurostoxx Index	381.6	-0.9
Oil (WTI)	49.0	-0.6
US dollar index	86.3	0.0
10 Year Govt Bond Yield	2.27%
Current Coupon Fannie Mae TBA	102.93
Current Coupon Ginnie Mae TBA	103.81
30 Year Fixed Rate Mortgage	3.94

Stocks are up this morning on no real news. Bonds and MBS are flat.

Should be a relatively dull week after the employment report. Not much in the way of data but we do have Fed-speak almost every day. 

Last Friday's jobs report didn't have much of an impact on the Fed Funds futures. They are forecasting a 99% chance of no hike at the September meeting, while the December meeting is being priced as a coin toss. The consensus seems to be that the September meeting will usher in the next steps in reducing the size of the Fed's balance sheet. 

The jobs report prompted a lot of articles asking about wage growth and why we aren't seeing it. The usual explanations include low productivity, lack of bargaining power on the part of workers, and the untapped reservoir of the long-term unemployed. IMO maybe the answer IS inflation - at 1.5% PCE growth, maybe 1% real wage growth is about the best we can hope for. We are seeing wage inflation in pockets (especially skilled labor and construction) however unskilled labor is still competing with technology which unfortunately keeps getting better and cheaper. Also, note that wage and job growth has been uneven geographically. 

The post-election spike in interest rates pushed down prepayment speeds and refis earlier this year. Now that interest rates have corrected some of that move, we are seeing them increase again, according the Black Knight Financial Services. The January and February numbers were the most depressed, which reflects the increase in the 10 year to 2.6% post-election. 

Wells Fargo has admitted that the fake account scandal could be bigger than previously thought. Meanwhile, Trump administration is taking a look at the Obama-era settlements where banks were forced to donate to third party activist groups as part of their settlement. 

Why are Treasury investors buying them at what will probably turn out to be a negative yield after taxes and inflation? Because the alternative (of losing more in the stock market).