El-Erian `More and More Worried' About Wages, Even as Jobs Gain

(Bloomberg) -- Mohamed El-Erian, Allianz SE’s chief economic adviser, said wage growth in the U.S. has been too low, even as employment climbs, adding to the urgency for lawmakers and the White House to take action.

“History tells me not to give up as yet, but the data has been disappointing. We are going through a soft patch, and it seems to be a prolonged soft patch,” El-Erian said Friday in an interview on Bloomberg Television. “So I’m getting more and more worried, but hopefully history will assert itself.”

Average hourly earnings rose 0.3 percent in July and were up 2.5 percent year over year, according to government data released Friday. The pace of annual pay growth is little changed over the past two years, owing to factors including weak productivity, as well as people returning to the labor force and accepting lower-skilled work. In El-Erian’s interview, which occurred before the data were released, the economist said that wage growth of 3 percent would be a sign for the Federal Reserve to again tighten monetary policy.

With the central bank’s benchmark rate still near record lows, there’s little that Fed Chair Janet Yellen can do to boost the labor market without risking financial stability “down the road,” he said. Instead, lawmakers and President Donald Trump’s team must show leadership, he said. El-Erian called for more infrastructure spending, tax reform and measures to reduce excessive indebtedness among Americans, such as obligations on student loans.

“We need actions on all three,” said El-Erian, who is also a Bloomberg View columnist. “That’s not something that the Fed can do. That’s something Congress and the administration can, and should, be doing.”

Trump has said there are already signs of progress. Payrolls rose by 209,000 in July, topping analysts’ estimates of a 180,000 gain. The jobless rate matched a 16-year low.

“Excellent Jobs Numbers just released,” Trump said on Twitter Friday. “And I have only just begun.”

Thinking About Mistakes

Equity futures were higher after the data came out. The S&P 500 Index advanced 10 percent this year through Thursday after jumping 9.5 percent in 2016. El-Erian reiterated his view that investors might want to limit their dollars at risk.

They should ask themselves, “If you end up making a mistake, what mistake can you afford to make?” he said. This means weighing the benefit of another 5 percent to 8 percent gain in markets against the risk of a major decline, according to the economist.

He also said stock pickers should take note of which industries and regions offer the most attractive valuations after a period of “rotating leadership.” He didn’t offer specifics Friday but has recently been highlighting opportunities in emerging markets.

--With assistance from Michelle Jamrisko

To contact the reporters on this story: Natasha Rausch in New York at nrausch@bloomberg.net, Katherine Chiglinsky in New York at kchiglinsky@bloomberg.net, Jonathan Ferro in London at jferro10@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net.