US economy: full employment is here….
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Intesa Sanpaolo – Research Department For professional investors and advisers only
One after the other, all the governments which managed the debt crisis are being punished by voters at the political elections. This was also the case in the past few days in Ireland, where the outgoing majority was defeated and, much the same as in Portugal and Spain, the outcome of the vote failed to guarantee an alternative majority, laying bare the inadequacy of electoral systems without a ballot in managing changes in the distribution of consensus. In Ireland the risk is a minority government, that would be forced to negotiate each measure with the opposition in Parliament – although the ideological distance between the major parties is not so great as to generate fears of political action coming to a total standstill. In Portugal, the way out was the formation of a weak left-wing government. In Spain, the PSOEs’ attempt to form a centre-left coalition with Ciudadanos and Podemos failed miserably, and the dissolution of Parliament, followed by new elections in June, seems increasingly likely.
The political earthquake will expand further next year, with the political elections in Germany and France, in this case for reasons other than the austerity policies adopted. In effect, the consensus crisis being experienced by the European governments has several motivations, and therefore prompts mixed and incompatible responses: quite simply, there is no shared European response to the dissatisfaction of voters. By contrast, the defensive reaction of the existing governments, where they are in office, may extend the decision-making paralysis of the EU bodies even beyond the referendum on the UK’s European Union membership, making it even more difficult to reach compromises on open dossiers, and the prospect of taking on the institutional reform process in the euro area, as the ECB has also recently started to call for again, totally implausible.
The Employment Report surprised again to the upside in February: strong employment, unemployment rate stable with higher participation; the small wage correction is a normal follow up to January’s +0.5%. Non-farm payrolls increased by 242k, and the two previous months were revised up by 30k overall. The average change in the past three months, at 228k, is in line with the 2015 average (+221 k). The private sector created 230k jobs. Employment growth accelerated markedly in the private services (+245k); in education/health care, the change was strong (+86k). Construction employment was up by 19k, keeping up the positive trend observed in 2015. Employment fell in manufacturing (-16k), after the (unsustainable) surge in January; in the mining sector, the correction continues. The public sector created 12 k jobs. Employment in the households’ survey, typically volatile, rose by 530k (3-month average: 543k).
The participation rate increased to 62.9%, with labour force up by 555k. The unemployment rate, is stable at 4.9% (low since 02/2008. The employment rate, at 59.8%hit a high since 4/2009. The broader unemployment rate (U-6), which includes underemployed and discouraged workers, falls to 9.7%. The only drawbacks in the report are: 1) hourly wages, lower by -0.1% m/m, after rising by 0.5% m/m in January; and 2) aggregate hours worked (-0.6% m/m), although stable manufacturing hours point to a modest increase in February’s output.
The data are very positive, in our view, with higher employment, labour force, employment rate and lower U-6. For months now, the expected employment growth slowdown has not materialized: payrolls keep marching on at a strong pace, further reducing labour market slack, confirmed by lower U-6 with higher participation. The fundamentals of the US economy remain positive, despite the more restrictive financial conditions in place since early 2016: the economy is clearly at full employment. The Fed’s aim is to overshoot both the maximum employment and 2% inflation targets. The February Employment Report does not change the expectation for a pause in March, justified by global risks and by increased financial restriction since January. These headwinds will stop the Fed’s hand for a few more months, but if the global economy stabilizes, a second rate hike may be on the horizon in June.
Source: BONDWorld.ch
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