The average salary in Israel is rising: the worrying truth behind the data

Alex Zabezhinsky, chief economist at the Meitav investment house, conducted a weekly macroeconomic review, in which he addressed the labor market and the bond market in Israel, the US labor market, the AI revolution, and the outlook for US interest rates.

"Israel: Israel's risk premium has decreased, as has that of the Gulf states. The rise in the average salary mainly reflects a change in the composition of the employed, not a real acceleration in wages. Most of the hiring continues to take place in the public sector."

Business activity is gradually improving. Companies expect a decrease in inflation. The wealth effect is expected to support consumption — the value of the public's asset portfolio has jumped by about 19% over the year. The increase in the portfolio's value is significantly greater than the total annual salary in the economy.

Over the past year, and even more so in the last quarter, institutional investors have sold foreign currency and the business sector has bought it in large volumes. The corporate bond market continues to price in too low a risk, especially in the real estate sector, despite a noticeable weakening in company stocks.

In the world: the US labor market is weak. The power of employers exceeds the power of employees. The AI revolution is changing the mechanism of profitability creation — companies are increasing output with almost no increase in the number of employees, which leads to an increase in productivity and profitability. The improvement in productivity is expected to moderate inflation through a decrease in wage pressures and offsetting some of the supply pressures created by tariffs and investments in AI infrastructure.

We continue to favor stocks in sectors that are expected to benefit particularly from the penetration of AI. The reduction in the chance of a FED interest rate hike supports bonds. The US Treasury continues to carry out 'quiet QE'.