The U.S. economy has grown at a steady pace over the last several years despite slower growth in other areas of the world. That is why last week’s disappointing employment report was such a surprise. The U.S. economy added new 38,000 jobs well below the 164,000 jobs expected in May. A revision of the April report lowered new jobs from 160,000 to 123,000.
The unemployment rate declined to 4.7%, which at first blush appears to be good news, however the decline came from a drop in participation. The number of working-aged citizens participating in the workforce fell from the 62.8% to 62.6%. The number of part-time workers who would rather be working full-time increased. The bright spot in last week’s news was the wage report. Average hourly earnings increased 2.5% over last year. Wages have increased in each of the last three months.
What do all of these numbers mean for the U.S. economy going forward? The disappointing jobs report takes a June Federal Reserve interest rate increase off the table. Forecasts for a June rate hike were as high as 34% late last month and dropped to a 4% chance after the May jobs report.
The Federal Reserve looks at maintaining maximum employment and stable prices. The unemployment rate has been within the Federal Reserve’s target zone for some time now but inflation pressures remained stubbornly low. The first signs of wage pressure come at a time when employment falters. Chairwoman Yellen spoke Monday giving markets a glimpse into whether the Federal Reserve plans to raise interest rates in July or a hold off until later this year. Her comments confirmed a bias for higher rates as the year progresses.
Employment and wage growth will continue to play a role in the FOMC decisions for raising short-term interest rates in the United States. If you want to learn more about interest rates and how they affect your portfolio, contact your advisor today.
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