This Week In The Economy: US Job Market Roars On, But Many Still Left Behind
Welcome to a regular snapshot-review of U.S. (and sometimes international) economic data that aims to 1) determine the direction of economic policy — such as the speed at which the Federal Reserve decides to raise interest rates, 2) provides a window into the challenges and decisions facing businesses today, and 3) assess what the impact will be for consumers.
The Labor Market Marches On
The U.S. employment situation continued its hot streak in July, with the economy adding 157,000 jobs and the unemployment rate falling to 3.9%. The private sector added 170,000 jobs last month, while the government sector (not surprisingly) shed 13,000 workers from its payrolls.
Within the private sector, service providers led the way — adding 118,000 jobs in July. Meanwhile goods-producing companies grew their payrolls by just 52,000 (of which manufacturing added a mere 37,000 workers).
On a more sobering note, 6.3 million Americans were unemployed in July and of that number, 1.4 million have been without a job for six months or more. The number of persons in part-time employment for economic reasons — i.e. not by choice — is at 4.6 million. According to the Bureau of Labor Statistics:
“These individuals, who would have preferred full-time employment, were
working part time because their hours had been reduced or they were unable to find full-time jobs.”
Expect More Interest Rate Hikes This Year
Despite the number of long-term unemployed, the overall strength of the jobs market means the Federal Reserve is likely to increase short-term interest rates a few more times before the end of this year.
The Federal Open Market Committee, the central bank’s policymaking body, declared after its two-day meeting this week that “ the labor market has continued to strengthen and that economic activity has been rising at a strong rate.”
This assessment comes on the back of a report last week estimating U.S. economic activity expanded by 4.1% in Q2, improving on a 2.2% growth rate in Q1 and the strongest pace witnessed in nearly four years.
As a result, the FOMC said it expects “further gradual increases in the target range for the federal funds rate” will be consistent with sustained economic growth, strong labor market conditions, and inflation near the Fed’s 2% objective over the medium term.
Trade Update: US Deficit Widens, China Threatens Retaliation
Data released today showed the U.S. trade deficit in goods and services widened to $46.3 billion in June from $43.2 billion in May. Exports of goods and services dropped by $1.5 billion in June while imports were up $1.6 billion.
It should be noted, however, that the overall trade deficit is driven by goods, which had a $68.8 billion deficit in June, up from $65.7 billion in May. The services sector actually had a $22.5 billion trade surplus in June — which should not be surprising given the U.S. economy is ~70% service-providers.
But in a week when the Trump administration is considering hiking proposed tariffs on $200 billion in Chinese goods to 25%, the above fact is unlikely to matter. Especially when China announced it is prepared to retaliate by slapping import duties on $60 billion worth of U.S. exports.
Around The Horn
The Bank of England’s Monetary Policy Committee voted this week to raise interest rates to 0.75%, as “external cost pressures” such as the drop in the British pound’s value (i.e. Brexit) plus higher energy prices have driven consumer price inflation above the BOE’s 2% inflation target.
The Bank of Japan is at the other end of the spectrum, engaging in a drawn-out, bare-knuckle fight to end the country’s deflationary woes and spur faster economic growth. Towards that end, the BOJ introduced forward guidance to its monetary policy statement — the goal being to underscore their commitment to maintaining ultra-easy monetary conditions for as long as it takes to achieve the central bank’s inflation objective.
“The Bank intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, taking into account uncertainties regarding economic activity and prices including the effects of the consumption tax hike scheduled to take place in October 2019,” the BOJ said.
The European Central Bank at its gathering of senior policymakers also opted to leave key interest rates unchanged “ at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.”
[Note: Unlike the Federal Reserve, both the Bank of England and the European Central Bank only have a price stability (inflation) mandate, while the Fed is charged with maintaining price stability AND ensuring maximum employment]
Additionally, in a nod to improving economic conditions within the Euro Area, the ECB announced that after September 2018 — so long as inflation behaves itself — it will slow the pace of its monthly asset purchases from €30 billion to €15 billion until the end of December 2018 and then net purchases will end. The program was initiated to bring down long-term interest rates and support borrowing and access to credit within the eurozone.