Friday, 1 April 2016

US economy roars ahead, with record job creation

The US jobs market continues to enjoy a sunny spell, with 215k jobs created in the month of March.

Obama took office at the depths of the recession. 6yrs of jobs growth has followed.
Source: St Louis Fred

Today's job report in the US marks the longest continuous period of jobs growth since 1939. 2.8m jobs have been created in the last 12 months alone.

After the dog days of the Bush Junior Presidency, where the economy endured 2 recessions and the US saw next to no jobs growth, the Obama Presidency has seen a steady recovery to new all time highs in employment.

The jobless rate ticked up to 5%, and some might say it's a sign that the good times are over. It's a puzzling paradox, you might think. Lots of new jobs, but more people out of work; what?!

Simple explanation: The job creation stat shows businesses are still happy to hire. The rise in unemployment, therefore, is a result of an increase in people entering the workforce, trying to find work. Possibly a sign of improving confidence.

Back in 2008, the collapse of Lehman Brothers sent shockwaves around the world. US unemployment hit about 10%, a level not seen since the mid 1980s. It was essentially viewed as a crisis level of joblessness.

The Obama recovery

Mr Obama's era in the White House has come to be associated with a steady recovery, albeit slightly weaker than hoped. Economic growth has taken a hit. Its pre-crisis average was 3% growth, but since 2010, it has dropped to 2% or so.

This recovery was mainly possible, thanks to a quick dose of fiscal stimulus, to bail out the car manufacturing sector, as well as the financial sector (apart from Lehman Brothers of course).

7 years of low interest rates coupled with quantitative easing aided this move, and in conjunction, they have slowly dragged the US out of a downturn which some feared could spiral into a new great depression.

The stimulus ended in 2010, as recession turned to recovery, and the mounting debts in industrialised economies began to become a burden. The period of low rates has just come to an end in the US, as we saw in December.

However, Fed Chair Janet Yellen soothed markets the other day, saying rate rises in 2016 would be less frequent than previously forecast. It's all just a question of how long it takes for inflation to take off again, before rates will need to continue their inevitable rise.

Greenback claws back losses of past decade

One of the disappointments about the Obama recovery is the lack of strong wage growth. The average American household has seen their income stagnate since the start of the new millennium.

The fall in real incomes explains the dissatisfaction with the recovery
Source: St Louis Fred

However, one of the quirks of the Obama years is the recovery in the USD's value. Between 2002 and 2008, it was falling, just as commodities like Oil and Gold soared.

The recovery in the US has prompted an end to monetary easing, causing the Dollar to rally. Commodities priced in Dollars have subsequently fallen, causing difficulties in countries that rely on exporting these materials.

A consequence of a stronger Dollar is lower-than-expected inflation. The Fed has now got a 2%-target for inflation, so they'll most likely keep eyes peeled on that, plus wages, before hiking any further.

US GDP figures for the first 3 months of 2016 are expected at the end of April. Some have feared growth may be seen to have slowed down, owing to jitters earlier in the year.

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