The newest Employment Situation reports disappointed some investors and analysts but I think they simply are misinterpreting the data.
They likely are focusing on the government reporting only 138,000 new jobs in the past month.
Last month’s report of 211,000 new jobs was revised down to 174,000 jobs, well below the numbers of the past year and raising concerns among some observers about reduced economic growth.
In addition, average hourly earnings increased only 0.2%, without any change in the average workweek.
There’s no doubt that economic growth declined during the last year. But there’s not much to be concerned about.
Slower jobs growth should be expected, in my view. The economy is at full employment and then some with the unemployment rate declining to only 4.3%.
Yes, there are many people in part-time jobs who’d like to be in full-time jobs. But there’s no mass of unemployed people looking to get back into the workforce. In fact, the number of people seeking jobs is near historic lows.
Also, businesses report in surveys that it is difficult to find employees to fill the jobs they have available. We see this situation in the JOLTS (Job Openings and Labor Turnover Survey). JOLTS found hiring lags job openings by about 1 million.
Employers can’t seem to find employees to match the skills those jobs require, though openings continue to grow at a healthy clip. The wide gap between job openings and hiring has continued for about two years.
This makes it likely that in the coming months, businesses will have to increase wages more than they have in recent years.
We see some shifts in the economy. Housing has slowed a bit, but manufacturing has improved. The service sector continues to be strong, with some monthly ups and downs.
Overall, demand for goods and services remains close to what it has been recently and is likely to continue. This is especially true for businesses with international markets, since growth is improving outside of the United States.
What we’re likely to see over the next year, and perhaps longer, is businesses boosting their investments in plants and equipment.
Business investment has been at extremely low levels since the recovery began, because there were so many unemployed people.
Businesses could increase output by hiring more workers, and the workers were relatively inexpensive.
The downside of this practice was that productivity declined. With productivity down and wages likely to increase, businesses need to invest more in equipment to meet demand.
We’ve started to see business investment increase a bit in recent months, though not every month. Expect that trend to continue.
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Until next time,
Robert Carlson is editor of the monthly newsletter, Retirement Watch. In it, he provides independent, objective research covering all the financial issues of retirement and retirement planning. Carlson also is Chairman of the Board of Trustees of the Fairfax County Employees’ Retirement System and the founder of Carlson Wealth Advisors, L.L.C.