U.S. Economy: Rebounding from 1st Quarter Slowdown
May 8, 2017
Marcus Winbush, CFP® — CEO, True North Capital Alliance
During the first quarter of this year, the U.S. economy began showing signs of slowing growth with softer inflation and job creation numbers. Analysts and economists questioned whether this was a temporary slowing in economic growth or whether it signaled a longer-term trend. Indeed, this was one of the key questions for the Federal Open Market Committee at its most recent policy meeting on May 2-3.
The Fed’s Growth Outlook
Although few people expected the Fed to raise interest rates at the May policy meeting, the Committee’s assessment of the outlook for economic growth was a matter of great interest. The Fed’s statement issued on May 3rd expressed confidence that the first-quarter slowdown in economic growth is likely to be short-lived. The Committee stressed the positive performance in the U. S. economy since their March meeting:
- Solid overall job gains in recent months and a decline in the unemployment rate.
- Modest increase in household spending with an outlook for continued growth in consumption.
- Firming in “business fixed investment.”
- Inflation nearing “the Committee’s 2 percent longer-run objective.” However, the Committee acknowledged that consumer prices (excluding energy and food) had declined in March.
At the end of its deliberations, the Committee reiterated its position that, “with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term.” With that assessment, the Fed voted unanimously to leave the federal funds rate unchanged at a range of .75 to 1 percent, which it had established at the March policy meeting.
Strong April Jobs Report
The April jobs report released on Friday, May 5th corroborated the Fed’s outlook, showing a rebounding U.S. economy. The labor market gained 211,000 jobs in April, outperforming economists’ forecasts for the month. Unemployment dropped to 4.4 percent—its lowest level in a decade. Major job gains were broad-based: leisure and hospitality up 55,000, health care and social assistance up 37,000, financial activities up 19,000, and mining up 9,000. Other major industries, including construction and manufacturing held steady.
The report showed progress in reducing the number of “involuntary part-time workers” in the labor market. Involuntary part-time workers are people who would have preferred full-time employment, but were working part-time because their hours had been cut back or because they could not find full-time employment. The number of workers in this category declined by 281,000 in April, and the report showed a decrease of 698,000 year-to-year.
At 62.9 percent, the labor force participation rate remained steady in April, showing slight change over the past year. After revisions in the totals for February and March, overall job gains averaged 174,000 over the past three months.
Further good news could be found in the earnings report for April. The average hourly earnings for all employees on private nonfarm payrolls rose by 7 cents to $26.19. Over the year, average hourly earnings have risen by 65 cents (2.5 percent).
Next . . .
Given a firmly rebounding economy, many economists think the Fed is likely to raise the federal funds rate at the Committee’s June meeting if the economy continues its growth trend. A June rate move is to be expected if the Fed is to make good on its projection of at least two more rate increases this year as economic conditions allow.
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