June Jobs Report
After disappointing results in April and May raised concerns that the job market was slowing down, the report for June alleviated these fears as the U.S. economy produced 287,000 jobs. This was well above the expectation of 180,000 jobs, and raises the three-month average from 116,000 to 147,000 jobs created. The unemployment rate rose from 4.7% to 4.9%, but this was mainly due to more people entering the workforce. The broader measure of underemployment, which includes jobless and part-time workers, fell to 9.6% from 10.5% in June 2015. Given the strength in this report, does this mean the Federal Reserve will raise interest rates when they meet later this month?
As strong as the report was for June, it is important to remember the volatility in these figures. In fact, May was revised down by 27,000 jobs and April had a slight upward revision. While the three-month average increased, the broader trend still shows a slowdown from last year when the economy added an average of 229,000 jobs per month. Although we do not believe the decline in jobs created is indicative of an overall slowdown in the U.S. economy, we do believe it may still give the Federal Reserve some time before they raise interest rates. This is especially true in light of issues abroad due to concerns of a slowing global economy and the potential impact of Brexit on Britain and the European Union (EU).
Wages continued to grow, which is an encouraging sign for consumer spending. The pace of growth, at 0.1%, was slightly lower than pace of growth in the previous two months, but the year-over-year growth now stands at 2.6%. This is the highest annual rate of growth since last December, and the last time it was higher was in June 2009. Continued wage growth may increase the chance of the Federal Reserve acting sooner than expected on interest rates but the possibility of a rate hike in 2016 are still fairly small. Overall, we view wage growth as a positive for consumer spending which we believe is important, since spending accounts for approximately 70% of U.S. GDP.
In spite of the slower pace of job growth in 2016 versus that of 2015, we are encouraged to see more workers entering the workforce and continued growth in wages. Our expectations have not waivered for a pace of steady economic growth as we head into the second half of 2016.
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