In the next few years, the US economy is expected to grow faster than any developed country in the world. The IMF World Economic Outlook predicted that US growth will tip over 2% in 2017. This week, we will go through the main drivers of the US economy and analysis their performance, starting with the Labour Force.
The job market is one of the biggest indicators of how well a country’s economy is doing. The labour market is central to the Federal Reserve’s discussion on when to raise interest rates.
Part 1: The Labour Force
Non-farm payrolls have increased significantly in the past month. The number of people employed has grown at the fastest pace since October 2015. The encouraging numbers have eased fears that the US is being pulled into another recession.The Federal Reserve’s meeting minutes were published this week, showed that many members believe a heating economy and increased fiscal stimulus under Donald Trump should force the Fed to raise rates faster than anticipated.
Unemployment claims, which depicts the number of people who sign up for jobseeker’s benefit during the past week, surpassed analyst’s expectations for the month of January. The latest figure will be released tomorrow. The US unemployment rate is estimated to be about 5% in the long-term. The recent non-farm payrolls showed a cool off in wage growth, currently at 2.25%. This is not the news the Federal Reserve were hoping for. Median household incomes have remined stagnant since the 1990’s and income inequality is growing at a faster rate than other developed countries.
US employment levels have risen since the 2009 financial crisis. The pace of monthly jobs increased since Obama became President and Congress put the Recovery Act into action in 2009. Federal jobs have decreased significantly in the past few years. This January, private employment accounted for 237,000 jobs, Federal government employment increased by 4000, state employment fell by 9000 and local employment decreased by 5000. This will be amplified by Trump’s freeze on Federal employment.
The labour participation rate, described as the percentage of able and willing Americans who are an active part of the labour force – this figure is somewhat depressed. While, US wage growth is slacking, there is no driving force pulling workers back into the labour force. This means that the unemployment rate could be slightly skewed by the lagging wage stimulus.
Tomorrow we will analyse US Inflation.