Can the US Economy Support Another Rate Hike by the Fed?
US job growth impressive
The US jobs report showed that US employers added 209,000 jobs in July. This marks the second straight month of strong job gains.
The job additions in July surpassed economists’ expectations of 183,000. Job gains were spread across sectors while healthcare, restaurants, and office jobs recorded the strongest increases. Industries such as leisure and hospitality also grew strongly in July.
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Unemployment and wage growth
The unemployment rate also inched slightly lower to 4.3% in July from 4.4% in June. July’s unemployment rate also matched the 16-year low level achieved in May. This decline in the unemployment rate is significant, as this level was achieved despite more people entering the labor force. Achieving a full employment level supports the Fed’s monetary tightening plan.
The average hourly wages increased 0.3% ($0.09) in July after rising 0.2% in June. This was the biggest increase in the last five months. The wages grew just 2.5% year-over-year in July 2017, the same pace as in June.
This trend is disappointing given the historical instances where the wage growth ranges between 3.5% and 4.0% when the unemployment rate is this low. Weaker-than-expected wage growth despite lower unemployment is mainly due to more low-paying jobs.
US economy and gold
In our view, the July US jobs report was strong overall and should not deter the Fed from its path of monetary tightening. Higher interest rates are usually negative for gold (GLD) as an investment, as gold is not an interest-bearing investment.
Apart from full employment, inflation is one the Fed’s objectives. In the next part, we’ll discuss the outlook for US inflation.