Cyclical Situation Still Mediocre

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by: Brian Romanchuk

The latest labour market data from the United States remain consistent with my view that the rate of growth is not enough to greatly reduce the mass underemployment that is the reality of the labour market. That said, the market implications are limited, as this is already priced into the curve. The Fed may wish to step up its anaemic pace of rate hikes, but they will remain dependent upon the data.

Average hourly earnings (above) were revised lower, and the growth rate remains extremely well-contained when compared to previous cycles. If there are any inflationary risks, they are associated with either the few areas of the economy that are hitting capacity constraints, or the parts of the service sector where costs are out of control (medicine, higher education).

The employment-to-population ratio ticked up, but it remains mired at extremely disappointing levels.

The wider Labor Market Conditions Index also is not showing much vigour. (It does not reflect the latest releases.)

The labour market data I previously showed was coincident data (although they should lead inflation data). Survey data are more forward-looking, but the ISM Manufacturing Survey is not signalling that a boom is underway. (This series used to be an excellent leading indicator; the secular fall in manufacturing employment has meant that it has become less important for signalling domestic capacity trends.)

In summary, despite political fireworks, 2017 is looking a lot like 2016.