Tags: jobs | market | fed | rate | hikes

Robust Jobs Market Won't Halt Fed Rate Hikes

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Friday, 02 November 2018 09:18 AM Current | Bio | Archive

The U.S. employment situation report for October shows that total nonfarm payroll employment rose by 250,000.

The unemployment rate was unchanged at 3.7 percent. Job gains occurred in healthcare, in manufacturing, in construction, and in transportation and warehousing, the report said.

In October, average hourly earnings for all employees on private nonfarm payrolls rose by 5 cents to $27.30. Over the year, average hourly earnings have increased by 83 cents, or 3.1 percent. Average hourly earnings of private-sector production and nonsupervisory employees increased by 7 cents to $22.89 in October.

In simple words, the Federal Reserve's planned interest-rate hikes remain well on track.

It’s clear that the U.S. labor market is strong and it is generating income growth. Average hourly earnings growth represents neither income growth nor wage growth and is indeed increasingly unrelated to either income growth or wage growth today.

The question has been raised as to whether the U.S. labor market is now so “tight” as to risk an economic slowdown because there are not enough workers in the U.S. to do the jobs required. 

Fed Chair Jerome Powell commented in a letter he wrote in August that immigration might be necessary to avoid a slowdown, which may prove to be controversial in the current political environment.  

The Fed chair stated in his letter: “Thus, from an economic growth standpoint, reduced immigration would result in lower population growth and thus, all else equal, slower trend economic growth … As you know, immigration policy is for Congress and the administration to decide.”

The Fed chair also said that immigration accounts for about one-half of population growth annually, and that it directly affects gains in the labor force and thus economic increases.

U.S. Trade Deficit Continues to Rise

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services deficit was $54.0 billion in September, up $0.7 billion from $53.3 billion in August, revised.

In September, imports from China rose to $50 billion, up from $47.8 billion in August.

Imports of goods increased $3.5 billion to $219.1 billion in September.

President Trump Suggests Relations with China Could Be Improving

President Donald Trump has been active on Twitter suggesting that relations with China were improving. He tweeted: “Just had a long and very good conversation with President Xi Jinping of China. We talked about many subjects, with a heavy emphasis on Trade. Those discussions are moving along nicely with meetings being scheduled at the G-20 in Argentina. Also had good discussion on North Korea!”

The president also asked his cabinet asked to come up with the terms for a possible trade deal with China.

Markets enjoyed it.

Of course, any trade deal requires two parties to agree.

Eurozone Manufacturing Growth Falls to 26-Month Low

The IHS Markit Eurozone Manufacturing PMI shows that Eurozone Manufacturing growth fell to a 26-month low. Exports declined for the first time in nearly five-and-a-half years while trade concerns pushed business confidence down to its lowest level since December 2012. All 19 nations of the Eurozone recorded a fall in business confidence, with German manufacturers recording outright pessimism for the first time in four years.

Chris Williamson, Chief Business Economist at IHS Markit commented: “The combination of destocking, deteriorating order books and drop in business optimism will add to concerns that “growth risks are shifting to the downside” rather than being “broadly balanced”, as indicated by the European Central Bank (ECB).”

We’ll see if the ECB will take this ongoing shift to the downside into account at its next monetary policy meeting on December 13.

U.S. Manufacturing Orders Growth Accelerates to 5-Month High

The Eurozone demonstrates a sharp contrast with the U.S. as the IHS Markit U.S. Manufacturing PMI that was released and showed that new order growth accelerated to a five-month high.

This divergent situation between Europe and the U.S. is important for investors.

Chris Williamson, Chief Business Economist at IHS Markit said: “… new order inflows rising sharply and business optimism spiking higher in an encouraging sign that firms expect the good times to continue into 2019. The increasingly bullish mood was also reflected in one of the largest monthly increases in factory payroll numbers seen over the past seven years as firms grew capacity to meet rising workloads. The key area of concern remained tariffs, which were widely reported to have contributed to another month of stalled export sales and a steep rise in prices for many inputs…”

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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It’s clear that the U.S. labor market is strong and it is generating income growth. Average hourly earnings growth represents neither income growth nor wage growth and is indeed increasingly unrelated to either income growth or wage growth today.
jobs, market, fed, rate, hikes
Friday, 02 November 2018 09:18 AM
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