What to watch

Add wages to key jobs report must-sees

As the job market continues to firm and joblessness drops, Wall Street, which is prone to worry, is looking for any signs of wage inflation building in the pipeline.

While fatter paychecks are a plus for workers, it has a dark side. When companies have to pay workers more, it could spur inflation – or rising prices on things ranging from eggs to electric cars -- prodding the Federal Reserve to accelerate its pace of interest rate hikes in 2017.

The government is expected to report Friday that the economy produced 180,000 new jobs in December, in line with the 178,000 jobs created in November. The unemployment rate is seen inch- ing up to 4.7% from 4.6%.

If the jobs data comes in at or near estimates, it will be viewed as more of the same and another sign that job growth remains healthy, says Kate Warne, investment strategist at Edward Jones.

But if signs of wage inflation are evident, it could make investors nervous, although it’s unlikely to prod the Fed to quickly up its forecast for 2017 rate hikes. In December, when it hiked rates for the only time in 2016, the Fed said it expects to hike borrowing costs three times in 2017.

Year-over-year wage growth has been tracking around 2.5%. “Wage growth could move markets if it comes in much stronger than it has been,” says Warne. “It would be a surprise and reinforce concerns that president-elect Trump’s policies will not only boost the economy, but also wage growth and inflation.”