June Jobs and Mid-Year Economy Review

Monitoring the economy is tricky business. The monthly reports that we get from the government require gathering reams of data over hundreds of hours, and all manner of processing to get us a simple sounding number like, “The U.S. economy added 287,000 new jobs.”

Even then, those numbers are routinely readjusted up or down later as more data comes in.

The May employment numbers were enough to stop a Fed rate hike in its tracks. Are the new June numbers good enough to put an interest rate increase back on track?

June Employment and the Fed

Employment numbers are very important to the Fed. A tightening labor market often is visible before any actual signs of inflation. The theory is that lower unemployment forces businesses to offer higher wages in order to attract and retain workers, which will eventually lead them to raise prices in order to cover higher costs. So, if employment jumps too fast, too far, it might be time to take a look at a rate hike.

us economy job numbers

The increasing transparency and ability to buy goods online has shaken this up a bit, however. Just because Macy’s raises prices on something doesn’t mean that you have to pay the higher price. There is Amazon, and price comparison web sites, and so on. This reduces pricing power, especially on goods that are easily substituted, such as brand name items that come in boxes. In the end, this can make the Fed maybe a bit too jumpy on jobs numbers, in my humble opinion.

That being said, I don’t run the Federal Reserve Bank, so we need to look at how they think about things. However, there is no need to overreact. Remember, that even if the Fed does raise interest rates, we are talking about going from 0.25% to 0.50%, still a very small change, and more impactful on the very macro level than for the average consumer.

So, where are we?

As is so often the case with economic statistics and economy news analysis, a lot depends on HOW you look at it.

First, the June jobs numbers are the strongest of the year. That means that the economy is still growing.

But, that’s still lower than just a year or two ago, which means that despite seven years of “up numbers,” the economy is still growing slowly at best, and while the jobs hole from the Great Recession has been filled, that doesn’t necessarily mean that there has been a full recovery of economic momentum.

Also, the terrible May jobs report was actually revised to make it even more terrible. The economy added just 11,000 jobs in May, as opposed to the initial number of 38,000.

So, if you average the two months together, you get two “normal” months.

The unemployment rate actually rose to 4.9% from 4.7% based on the fact that more people have entered (or re-entered) the job market. The most commonly reported unemployment rate does not count people who are not looking for a job, including those who give up when things get too bad.

Mid-Year Economy Review

I’m starting to feel like a broken record.

Numerically, and statistically, we can conclude that the U.S. economy is still growing, but it is still growing slowly.

However, that slow growth is starting to add up. I always caution people to not read too much into their personal and local experiences, but around the Denver area, where I live, things look very different than just a year or two ago. Construction is going crazy with cranes all over the downtown area skyline. Ads for new home communities in the suburbs are starting to appear on TV and elsewhere. And, the sign boards out in front of restaurants no longer tell you about specials, because they are filled with notices that they are hiring, and paying more than the same signs used to say just last year, and even more than they said just at the start of the school year in September.

Still, this economic recovery is on shaky ground, not so much because of what is happening in America, as much as the rampant instability in the international economy. China seems to be swing from incoming meltdown to “never mind” so quick I get whiplash. Greece has left the headlines, but still has issues. The Brexit thing may be messing with Europe, and the EU, …. or not. One gets the feeling that in a more “normal” international environment, the U.S. economy would be roaring forward. Instead, we’ve got one foot on the brake.

We’ll keep an eye on the Fed, which seems to be very intent on getting at least one rate hike in somewhere this year, but other than that, it is more of the same. Review your portfolio and do a mid-year rebalance, if you usually do that. Otherwise, stay the course, and let your diversified portfolio do what it is supposed to do.

This article is for informational purposes only, and is NOT a recommendation to buy, sell, or hold securities. Consult your financial professionals for specific advice on your financial situation.

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