In April, the U.S. economy added an additional 160,000 jobs and the unemployment rate remained at 5 percent, levels consistent with full employment. With the recent gains in April, the US economy has now created new jobs for 74 straight months after the end of the great recession. On Friday, we will get the May reading for nonfarm payrolls and expectations are for an additional 160,000 jobs added during the month. Our focus will not be on the number of new jobs added, but the year over year change in average hourly earnings.
Civilian Unemployment Rate
At this stage in the business cycle, wage growth should be accelerating as there are fewer people out looking for jobs. In April, wage growth was up 2.5% over the prior year and expectations are the same for May. We expect a strong increase in hourly earnings this month as the consumer spending numbers released yesterday showed the strongest year over year increase since August of 2009. An upward trending rise in wages would be positive for the economy as consumer spending constitutes 70% of GDP here in the U.S.
The labor market continues to be the shining star in a slow growth economy. Anecdotally we hear across many different industries that there is a shortage of labor which means that in order to attract talented people, companies are going to have to spend more. We will be carefully watching on Friday to see if wage growth is moving higher. This would give the Fed ammunition to gradually shift rates higher this year, progressing along a path to normalization. This would be a positive for the economy and the stock market moving forward.
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