Market and economic update: Improving job market is encouraging people to search for work again
Last week was headlined by a robust U.S. employment report, with January nonfarm payrolls growing by 257,000 jobs. Including the 147,000 jobs added to the months of November and December, nonfarm payrolls added the most jobs over the past year (3.2 million) since May 2000.
Even a rise in the unemployment rate to 5.7% was seen as a positive, due to a 0.2% increase in labor force participation. Market watchers have been skeptical of the decline in the unemployment rate, due to the decline in labor force participation. Over the past year, the rate of decline in labor force participation has slowed, indicating a portion of the formerly discouraged population may be returning to their search for work.
Also a positive was the 0.5% increase in average hourly earnings, which reversed last month’s decline. Coupled with the 2.7% annualized increase in unit labor costs for the fourth quarter, market sentiment appears to be recognizing a healthy recovery for the U.S. jobs market. We remain positive for economic growth in 2015, with consumer spending, on the back of the highest jobs growth in 15 years, providing primary support.
Deflationary pressures remain operative outside the United States, and economic growth remains sluggish. Price indications from Europe, Japan, and China point to weaker prices, even when excluding the recent decline in oil prices. Monetary authorities in the eurozone and Japan have more work ahead in order to rekindle inflation expectations.
Purchasing manager data for these key economies indicate growth remains slow but positive. Further stimulus measures will likely be required to sustain economic growth in the face of deflationary pressures. Last week, China added to stimulus measures by reducing its required reserve ratio for banks by 0.5% to 19.5%. This move was designed to free up capital to help stimulate lending in the face of capital outflows.
For more information, go to https://reserve.usbank.com/insights/market-economic-update-02-09-2015.
Robert L. Haworth, CFA, is a senior investment strategist and Darrell Behnke is the Madison market leader for the Private Client Reserve of U.S. Bank.
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