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Krista Biernbaum

October 10 , 2016

The U.S. Labor Market: A Bright Spot for the Economy

Investment Basics: The U.S. Labor Market: A Bright Spot for the Economy

The labor market remains a bright spot even though growth is slowing for the broad U.S. economy. The number of jobs added to the economy is averaging around 180,000 a month thus far in 2016. This is lower than the level seen in 2015, but is still consistent with modest growth.

The U.S. added 156,000 jobs in September and the unemployment rose slightly to 5.0% as more people entered the work force. Even though the economy added fewer jobs than expected, it was still a respectable number. The average jobs added in the 3rd quarter was 192,000 a month, thanks in part to the strong report in July.

The labor market is nearing full employment, which will satisfy one of the Fed’s mandates. Inflation, the Fed’s other mandate, continues to run below longer term objectives. As the U.S. approaches full employment, wage pressures should start to build and earnings will start to rise. This is exactly what we have started to see; wage growth picked up in September and average hourly earnings rose 2.6% from a year ago.  This bodes well for consumer spending and the overall U.S. economy.

The September jobs report comes at a crucial time as the Presidential elections are less than a month away and the Federal Reserve hopes to raise interest rates this year. The Fed has two policy meetings left in 2016. If the Fed acts this year, the consensus is it will be at its December meeting. After the release of the employment numbers on Friday, the odds of a December interest rate increase rose to 65%.

Regardless of what the Fed decides to do, the U.S. economy should continue to grow at a moderate pace and the labor market should continue to post modest job gains in 2016. If you would like to talk about the labor market or the U.S. economy in further detail, give Security National Bank a call today.

 

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