The U.S. economy continues to grow and add jobs in spite of weakness elsewhere in the world. We are now well beyond talking about this as a recovery – it is a mature expansion albeit with growth rates slightly lower than we would like and lower than previous recoveries as our graphs show. The good news is that we have full employment and we continue to grow and be a driving force in the world economy in spite of weakness almost every where we look. The slowdown in China, the contractions in Japan, Brazil and other emerging markets, and the uneven growth in Europe have not been enough to interfere with our party. This does not mean there are no problems – labor force participation rates and wage growth are low and thus are not making inroads into the declining fortunes of the middle class. These problems are long term and structural and to a large extent the result of the most recent wave of globalization.
Last Friday’s release of the 2nd estimate for real GDP in Q4 2015 increased growth from the advance estimate of 0.7% to 1.0% at a seasonally adjusted annual rate. The revision increase was mainly from inventories, according to the BEA. The report did little to change the perception of the underlying strength of the economy. According to ActionEconomics!, the big upward surprise to inventories was primarily due to the difficulty estimating quarter-end prices from such large declines in oil prices. Overall, for 2015, GDP increased 2.4%, the same as in 2014.
Growth in Personal Consumption Expenditures (PCE) was a major contributor to strength, but its growth has slowed over the past few quarters, increasing at a 2.0% clip.
The Bureau of Labor Statistics released the employment situation for February, revealing a 242,000 increase in payroll employment. In addition, employment was revised up for both December, +9,000 and January +21,000.
The 254,000 increase in private service producing jobs was led by health care and social assistance, +57,400, retail trade, +54,900 and leisure and hospitality, +48,000. The goods producing sector, on the other hand, shed -15,000, led by the continued decline in the mining and logging sector (oil), -18,000 and manufacturing -16,000; however, the construction sector added +19,000.
While the overall employment numbers are encouraging, average weekly hours fell slightly to 34.4, and there was a slight decline in average hourly earnings, $25.38. These are not significant given the extent of variation in these numbers. What is clear is that wage growth is beginning to look more like previous cycles and as the job markets tighten it may be that this trend will improve. Productivity, which had been showing signs of improvement, drifted down slightly but some of this may be seasonal.
Interestingly, the household measure of employment has shown an acceleration over the past four or five months.
Both the participation rate and the employment to population ratio ticked up to 62.9 and 59.8 percent respectively, while unemployment was essentially unchanged at 4.92%.
Overall, the employment picture along with the GDP data suggest growth, but there is enough weakness around to give the Fed pause at the next meeting.