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U.S. Unemployment Falls to 7-Year Low

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U.S. Unemployment Falls

U.S. Unemployment Falls to 7-Year Low

July 3 2015, 06.32am GMT

STOCK.com

The Bureau of Labor Statistics’ news release on Thursday reports that nonfarm employment increased, while the unemployment rate fell to its lowest levels since the onset of the Great Recession.

On the face of it, these figures look very encouraging, scratching beneath the surface though, economists find that all is not as rosy as it appears at first glance.

The good news is that the number of new jobs grew by 223,000 in June, however this was a decline from the revised May figure of 254,000. The number of unemployed people fell by 0.2 percent to 5.25 in June or by a total of 375,000 to 8.3 million. 

The statistics for the unemployed is somewhat skewed by the fact that the civilian labor force declined by 432,000 in June following a similar figure in May. At the same time, the labor force participation rate fell by 0.3 percent to 62.6 in June.

The news indicates that the U.S. economy has been unable to shrug off the sluggishness that has been apparent since 2009. Contrary to expectations, the wages for U.S. workers remained flat in June with the increases experienced in April and May not maintaining their momentum.

The New York Times voiced the view on the latest figures as, “Not too hot, not too cold. But not, alas, just right.”

Liz Ann Sonders, chief investment strategist at Charles Schwab, commented that the report was acceptable and she also added the decline in the unemployment rate did not occur for the right reasons.

The signals from the last meeting of the Federal Reserve, that it plans to raise rates at its September meeting, should remain unchanged despite the flat wage figures for June and the cooling effect that it should have on any inflationary tendencies.

Meanwhile, Michael Gapen, chief United States economist at Barclays Capital, wrote that the latest jobs report is not an indication of a shift in opinions regarding the Federal Reserve and the timing of an interest rate increase. He went on to say that analysts still believe that the first rate hike will still take place in September.

Added to this, Guy Berger, a United States Economist at RBS, stated that the positive side is that the US is not on the verge of an inflation spiral and therefore, the country is able to afford to “put people back to work for quite some time without the danger of inflation”.

Over the past twelve months wages are up by 2%, modestly ahead of inflation which is running at around 1.5% according the latest data.

An average of 208,000 new jobs per month have been created in 2015 and while this figure is lower than the 260,000 average for 2014, the  steady increase in jobs is enough to see a gradual decrease in the unemployment rate.

The facts are however that 16.7 million people still couldn't find jobs in June and were forced to do part-time work or were just too discouraged to carry on the job search.

The GDP growth forecast of 2.9% for the second half of the year should see a continuance of new jobs being created at a steady pace, but not enough to put pressure on employers to significantly increase wages.

This is borne out in the comments of Frank Friedman, chief financial officer of global tax and business consultant Deloitte LLP who said that wages will only increase when “the labor market becomes so tight and so restrictive that it forces companies to increase salaries substantially.” 

 

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