Market and economic update: Still waiting for job growth to translate to wage growth
Nonfarm payrolls grew by 2.95 million jobs in 2014, the fastest pace since 2000, with the unemployment rate finishing the year at 5.6%, the lowest level since 2008. The market was somewhat disappointed, however, by the decline in average hourly earnings, which indicated the growth in payrolls is not yet resulting in meaningful wage growth.
Over the course of the first half of 2015, we expect the strength in the jobs market to ultimately result in a modest lift to wage growth. Activity in the U.S. economy is likely to slow from the fast pace we saw in the third quarter, although the economy will remain healthy. U.S. purchasing managers indexes (PMI) slipped from their high levels, but they remain at levels consistent with solid growth and our current estimate of 2015 gross domestic product (GDP) growth of around 2.7%.
Economic activity remains relatively weak in Europe, Japan, and China. These major economies may see some lift from the fall in oil prices, but each is subject to specific factors that are likely to limit the economic lift. In Europe, deleveraging continues to constrain the credit market, limiting growth. However, PMI indexes seem to indicate the economy is, for now, avoiding another recession.
The key will be the size and effectiveness of European Central Bank quantitative easing (QE) this year. Growth in Japan appears to be recovering from the recent recession, aided by expanded QE, with the manufacturing PMI index recovering back toward neutral. Growth in China remains weak, although the government appears committed to using its tools to lift economic activity toward its targets.
For more information, go to https://reserve.usbank.com/insights/market-update-01-12-2015.
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