Signs the U.S. Recovery is Solid

Building-blocks_Comstock_Stockbyte_500x250
Comstock / Stockbyte / Thinkstock

Many market observers lately have been making some pretty pessimistic evaluations of the U.S. economy, declaring that it’s stagnating and soft. Given this pessimism, which began following weak early 2015 data, it’s hardly surprising that most market watchers interpreted last week’s June’s job report as another sign of the U.S. economy’s softness.

In my opinion, however, the pessimism is unwarranted and dramatically off-base, creating a distorted picture of the U.S. economy. Indeed, when you look beyond the headline economic data and aggregate nominal numbers the pessimists tend to focus on, you see a solid, and improving, U.S. economic recovery.

When do you see the Fed raising rates and why?Join in >

Take the June jobs report. While the headline payroll gain came in weaker than expected, the strong U.S. labor market is evident when you look at payroll numbers over the longer term, including the 3-month, 6-month and 12-month moving average payroll gains. Last month, they came in at 221,000, 208,000 and 245,000, respectively, all stronger than the 200,000 average level of jobs growth that has been typical of past periods of economic expansion.

In addition, the 5.6 million jobs created in the past 24 months is greater than the combined total created in the 13 years prior. Meanwhile, other employment reports, including jobs-hard-to-fill/jobs-easy-to-find measures and unemployment claims, remain strong.

To be sure, stronger average earnings growth is still a missing component of the U.S. labor market recovery. However, one of the primary reasons for June’s stagnant hourly earnings is the composition of jobs being created. The new jobs appear to be in sectors that are lower paying, keeping the average levels lower than might otherwise be the case. Looking forward, I expect to see stronger wage gains in the near future, given the wage improvement that has been displayed by other indicators in recent quarters, such as the Employment Cost Index (ECI). I’ll be closely watching the ECI at month’s end to get another view on the wage picture.

Elsewhere, as I wrote last month, U.S. consumption is likely stronger than headline figures suggest, when you consider that much recent weakness is a result of falling oil prices and the dynamic of new technologies’ downward influence on price.

Similarly, corporate investment is probably stronger than it appears, due to the same deflationary forces at play within the information technology (IT) segment of the capital investment universe. Indeed, on a constant-dollar basis, IT investment has surged far beyond what’s implied by merely looking at gross corporate spending levels, which don’t take into account tech price deflation. Finally, “easy to count” metrics about the economy also show improvement. For instance, this last April, the U.S. saw higher levels of income tax revenue than ever before, and auto sales and hotel revenues have been accelerating recently.

In short, a close look at much recent economic data shows a U.S. economy that is doing quite well considering the long-term headwinds holding down growth, from demographic changes to consumer debt levels. And while U.S. economic growth today is lower than at points in the 1980s and 1990s, it’s still quite remarkable in a global environment beset by only moderate European growth and slowing growth in China and other emerging markets.

As for what this means for the timing of a Federal Reserve (Fed) rate hike, data about the U.S. economy on balance exceed the reasonable measures a “data dependent” Fed might require to move off of “emergency interest rate” levels, as BlackRock’s proprietary “Yellen Index” of labor market/economic conditions shows in the chart below.

That said, we may not see a rate rise from the Fed in September, given muted wage growth and risks to U.S. growth out of Europe and China. The Fed is likely to hold off until later this year, especially if we see greater than anticipated stress on the U.S. economy from Chinese growth acceleration, and or if the situation in Greece drags down European growth, leading to more European Central Bank (ECB) stimulus and a strengthening dollar.

Yellen Index

Source: BlackRock research

Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Fundamental Fixed Income, Co-head of Americas Fixed Income, and is a regular contributor to The Blog.

Advertisements

About Uy Do

Banking System Analyst, former NTT data Global Marketing Dept Senior Analyst, Banking System Risk Specialist, HR Specialist
This entry was posted in US economy, US Recovery and tagged . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

THÔNG TIN HAI CHIỀU

SỰ THẬT – CÔNG LÝ – HÒA BÌNH

BlackRock Blog

Just another WordPress.com site

South China Sea Research

Facts and Legal Aspects

WIT

Women in Theology

Framework

Capturing the world through photography, video and multimedia

Tokyobling's Blog

Tokyo in Photos

snow monkey photography

travel and street photography

The History of Love

The Trials & Tribulations of English Romance, 1660–1837

Psyche's Circuitry

Thoughts on growing up and growing old in the digital age

East Asia Forum

Economics, Politics and Public Policy in East Asia and the Pacific

Nghiên cứu quốc tế

Just another WordPress.com site

From Swerve of Shore

A Blog by Photographer Aaron Joel Santos

Afro Pick

"The past is never dead. It's not even past."

The Science of Mom

The Heart and Science of Parenting

Life in Russia.

A memoir of my experiences living in St. Petersburg, Russia and traveling to other Russian cities and former USSR countries.

Chiến tranh Việt Nam

Cổng thông tin tư liệu về Chiến tranh Việt Nam

%d bloggers like this: