Month: January 2018

By Thomas Cooley and Peter Rupert

Fourth quarter real GDP increased 2.6% according to the advance estimate from the Bureau of Economic Analysis and 2017 finished up 2.3% overall. Personal consumption expenditures was the leading contributor, rising 3.8%, with durable goods purchases up 14.2%. Investment also came in strong, rising 3.6%, with residential fixed investment increasing 11.6% and non-residential equipment up 11.4% after being in negative territory for the past two quarters. On the negative side, inventories declined $29.3 billion and imports increased 13.9%, the latter being a subtraction in the GDP accounts.

The PCE chained price index increased 2.8%, the largest increase since 2011. It may signal an increase in pricing power in the economy. If so, it will give the Fed further justification for the ongoing increase in interest rates.

The dollar has been sliding and has recently been the talk of Treasury Secretary Mnuchin and President Trump from Davos. The Davos bump pushed the dollar to some of the lowest levels it has seen against the Euro.

The steady growth in the overall economy keeps the Fed in ready mode, although today’s strong, but not spectacular numbers, likely means no move at the upcoming meeting.

The U.S. is engaged in the sixth round of a scheduled seven rounds of negotiation of the NAFTA Treaty.  The U.S. is pressing for changes that would benefit U.S. manufacturing and transportation. The Countries seem far apart on the issues. The chart below makes it clear that the NAFTA has had a tremendous effect on trade between the three countries. Eliminating NAFTA would have severe consequences for all of the economies involved.

By Thomas Cooley and Peter Rupert

The BLS announced that December employment rose by 148,000. The gains were broad-based, the only declines were found in retail trade, -20.3, and utilities, -0.9. This is well off the trend rate of job growth of the last few months.  It is also significantly softer than the ADP estimate based on payroll data of 250,000 new private sector jobs. But employment growth has been volatile month-to-month and this softening is not statistically meaningful. The unemployment rate remained steady at 4.1% and other features of the labor market remained much the same.

Average hours of work remained at 34.5 and average hourly earnings ticked up 9 cents to $26.63.

Average hourly earnings increase was 0.3% which signals some upward pressure on wages but nothing like a the break through increases that observers have been looking for as evidence of a tight market.

The household survey shows that labor force participation and the employment population ratio remain largely unchanged at historically low levels. This represents a degree of slack in the labor market and it isn’t changing.

 

 

Weather and recurrent natural disasters have had a fairly steady damping effect on the aggregate labor market over the past 12 months.  Observers report emerging signs of tightness and rising wages in some regional markets that have not been so affected.  We should expect to see some significant strengthening of labor markets over the next 12 months that have nothing to do with changes to the tax law.  If that also turns out to have an impact on employment then we should begin to see that show up in wage growth and labor force participation.