During the past several months there have been numerous questions and concerns about the state of the U.S. economy. Predicting all or many aspects of the American job market and closely associated economy is a formidable, professional task.
When attempting to immigrate to a country for work or study, a person should try to understand some of the current economic data. We will try not to predict anything here, although we will report what some other experts have expected and imply for the near future.
The United States (and most countries) often break jobs data into agricultural and farm employment and non-farm employment numbers. Within the non-farm numbers, sub-categories such as factory workers, service sector and professional, highly skilled positions are then noted.
So, U.S. nonfarm payrolls expanded by 128,000 in August, somewhat more than market expectations earlier in the summer. This followed gains of 121,000 in July and 134,000 in June. Increases in business and professional services were up by 26,000 jobs, government positions by 17,000, and construction also by 17,000.
There were declines in the retail sector (-14,000) and manufacturing (-11,000). The gain in construction jobs suggests that strength in the non-residential market (with businesses expanding productive capacity) has more than offset weakness in the residential housing market. In the past two months there has been a dramatic decline in the housing market, with new home construction down and prices for properties dropping. This is considered an important indicating factor to determine the health of an economy.
Also encouraging is that the unemployment rate edged down to 4.7% from 4.8% in July. The United States determines unemployment as persons filing new unemployment claims in the past month, rather than the total number of people seeking work who are otherwise eligible for jobs.
The average workweek declined to 33.8 hours from 33.9 hours in July, which is actually slightly bad news as it indicates people are working less than full-time. As a consequence, the index of aggregate weekly hours worked fell 0.2% for August. However, it is still up 0.8% from the second quarter (annualized for August/July of the third quarter, which finishes at the end of September). Assuming a 2% gain in labor productivity, the data on work hours suggest that real GDP growth in the third quarter will roughly match the 2.9% pace of the second quarter.
Wage growth slowed in August with average hourly earnings up only 0.1% for the month. The year-over-year rate of increase in earnings has stabilized at 3.9% in the last three months, though this is up from 2.7% in August 2005.
With employment growing moderately, the unemployment rate inching down, and wage inflation stabilizing, the Federal Reserve will likely remain on hold (no changes in interest rates or policies) at the September 20 policy meeting.
The next move in official rates is predicted by some financial institutions as downwards, though not until late this year or perhaps early next year. The extent of the easing is expected to be moderate, with the fed funds rate declining from a current 5.25% to a more neutral 4.50% by the spring of next year.
After a strong first quarter, Gross Domestic Product (GDP) growth came in weaker than expected at an annualized 2.5% for the second quarter, down from a heated 5.6% pace for the first quarter. Growth may strengthen slightly for the third quarter, probably remaining moderate for 2007 as the housing market slows and consumers struggle with past interest rate hikes and high energy prices. A decline in homebuilding, as well as a sharp moderation in personal and government spending, led in large part to the slowdown.
Although core inflation remains elevated, inflation expectations should remain contained by soft economic growth. Business spending on equipment and software unexpectedly fell 1.0%, though this followed a hefty 15.6% advance in the first quarter. It appears that past increases in interest rates are working to moderate the pace of expansion.
Because of past increases in interest rates, growth will likely remain below its long-run potential rate of 3.25% in the year ahead. A recession, however, is predicted as unlikely by the Bank of Montreal.
If the Federal Reserve resumes raising rates to contain rising inflation, then it is expected that very serious negative effects will be felt throughout the economy.
The U.S. dollar can no longer lean on the Fed for support, having weakened significantly during the past month, in particular against the British pound and the Euro, two currencies that have been supported by higher rates overseas. The dollar is expected to depreciate by about 10% through to the end of 2007 in response to continued global monetary tightening, expected Fed easing, and the large U.S. current account deficit.
Growth averaging 4% in the first half of the year seems to demonstrate the economy's solid underlying momentum, in particular, in business investment. Recent declines in mortgage rates could rekindle the flame in U.S. housing markets, resulting in a stronger economy.
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