U.S. Payroll Paints a Brighter Picture


Despite fears that the U.S. economic recovery could slow down again, a payrolls surge in December and recent strong employment figures are in fact showing that the economy may be on stronger ground than many believe.
Strong Figures
The latest figures from the Labor Department show that nonfarm payrolls increased by 292,000 in December, while unemployment remained stable at its more than seven year low of 5 percent. The recent events in China, low global demand and the high value of the dollar has led to fears that the U.S. economy would start to weaken as the manufacturing and export sectors struggle to retain existing and obtain new business.
Even after the upbeat payroll figures, Wall Street was still struggling as gains on the stock market were quickly offset by further declines in oil prices and renewed fears over China’s economy. Despite this, the dollar is remaining stable and many investors are confident that the Fed will raise interest rates again by the end of the third quarter, if the positive economic news continues.
Wage Growth
One of the key issues facing the Fed on any further interest rate hikes is the still abnormally low rate of inflation. Normally, an increasingly tightening employment market indicated by the surge in the payroll figures would prompt economists to predict a corresponding increase in inflation. However, with oil now trading at around $30 a barrel, this may offset any wage increases caused by the higher employment rate.
There are also other issues, as while the overall number of jobs is increasing, there are significant losses in some sectors with the total number of mining jobs falling 129,000 in 2015 and similar figures occurring across the energy sector as whole. While manufacturing and hospitality showed significant job gains, any wage gains are being offset by lower wages and less opportunities in other sectors. If wage growth fails to drive inflation up, then this could cause the economy to stutter once more.


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