Financial Focus: Will U.S. Job Growth Pick Higher Interest Rates and a New President?

Anthony profileFinancial Focus: Will US Job Growth pick Higher Interest Rates and a New President?
By Anthony Rivieccio, MBA,PFA

U.S. job growth slowed in August, but the unemployment rate dropped to a near 7-1/2-year low and wages accelerated as the Federal Reserve policy meeting is scheduled for September 16th to the 17th. So far, prospects of a Federal Reserve interest rate hike next week have been kept alive.

As part of the Federal Reserve, the Federal Open Market Committee (FOMC) generally holds eight meetings throughout the year to vote on policies dealing with the predicted future of the economy. So far, the possibility that interest rates might increase after the FOMC meeting in September has been heavily focused on. But, let’s go through some more background.

Nonfarm payrolls (this represent the total number of paid U.S. workers of any business) increased 173,000 last month after an upwardly revised gain of 245,000 in July, the Labor Department said on Friday. August’s gain was the smallest in five months and the biggest sector loss since July 2013. In addition, payrolls data for June and July were revised to show 44,000 more jobs created than previously reported, bringing the average job gains for the past three months to a solid 221,000.

A broad measure of joblessness that includes people who want to work, but have given up searching and those working part-time because they cannot find full-time employment, fell to 10.3 percent. The lowest level since June 2008.

In August, construction payrolls rose 3,000 on top of the 7,000 jobs added in July. Mining and logging employment fell by 10,000 jobs, the eighth straight monthly decline. Manufacturing payrolls slid to 17,000 as sharp declines at metals, machinery, and food industries offset a solid increase in employment in the automobile sector.

So what does this all mean?

The jobless rate in the U.S. fell two-tenths of a point to 5.1 percent, its lowest level since April 2008.

The decline in the unemployment rate brought it into the range that most federal officials think is consistent with a low but steady rate of inflation, and would likely bolster their expectation that a pick-up in wages will help lift inflation toward their 2 percent target.

So, how is inflation doing?

Average hourly earnings increased 8 cents, the biggest rise in seven months and the length of the average workweek also expanded. The 0.3 percent increase in hourly earnings left them 2.2 percent above last year’s average. However, this was still well below the 3.5 percent growth rate economists consider healthy.

Aggregate weekly hours rose to 0.4 percent, the largest gain since November. The combination of more hours and higher earnings left workers with a 0.7 percent increase in their take-home wages. While the mixed report did little to alter views that the U.S. economy remains vibrant, despite volatile global financial markets and slowing Chinese growth, it could further complicate the Federal Reserve’s decision at the policy meeting.

A tighter labor market and decisions by several state and local governments to raise the minimum wage should eventually translate into faster earnings growth.

So, what does that mean to short-term interest rates next week and a presidential election next year?

Based on unemployment, inflation and wages, it is a strange and sideways slope. While our economy is growing, it is not growing enough to spur any mad cycles of inflation. But, we do believe interest rates will start to creep up toward November.

Therefore, we believe that the Federal Reserve, on September 17th, will leave interest rates the same- just in time for Presidential season. In 2017, the most talked about topics will be Trump, Hillary, Bernie, our economy, and the state of interest rates.

Anthony Rivieccio is the founder & the CEO of The Financial Advisors Group, celebrating their 18th year as a fee only financial planning firm specializing in solving one’s financial problems. Anthony, a recognized financial expert since 1986, has been featured by many national and local media including: Klipingers Personal Finance, The New York Post, News12 The Bronx, Bloomberg News Radio, Bronxnet Channel 67 TV, The Norwood News, The West Side Manhattan Gazette, Labor Press Magazine, Financial Planning Magazine, WINS 1010 Radio, The Bronx News and The Bronx Chronicle.

For financial inquires or assistance, Anthony can be reached at (347) 575-5045 or advisorsgroup@ymail.com.