Is the U.S. economy losing its momentum? That’s what those who watch the course of American commerce were worried about until Friday, when they got two pieces of good news: Job growth surged in June and wages continued to rise.
The Labor Department said the economy added a surprising 287,000 jobs during the month, the most since last October, and the agency also said the average hourly earnings of private-sector workers have increased by 2.6 percent during the first six months this year.
More money in consumers’ pockets figures to translate to higher spending in the weeks and months ahead, possibly affecting the remainder of the vacation season and back-to-school spending in positive ways.
David Lukes, chief executive of Equity One, a commercial real estate investment company, told the New York Times that he is among business owners who have boosted salaries and benefits to retain staff and find new people.
“I’ve had the troubling experience of losing good employees,” Lukes said. “Reward programs are much more important than they were three, four and five years ago.”
The upbeat unemployment report also lifted the financial markets. All three major U.S. stock indexes closed the week higher and at levels they enjoyed before the United Kingdom voted in late June to leave the European Union.
“The economy is chugging along, creating some jobs, but the Fed is still unlikely to do anything for a while,” Erik Davidson, chief investment officer at Wells Fargo Private Bank, told the Wall Street Journal, adding that the current quiet period for interest rates should encourage investors to put money into U.S. stocks.
“This is a golden age to be a consumer in the U.S.,” he said, pointing to signs of a strong economy, solid job growth and the availability of loans at good rates.
MarketWatch did caution that the economy is not creating jobs at the pace it was a year or two ago. The average job gain during the past three months is 147,000, far below the five-year high of 282,000 that was reported for the fourth quarter last year. Most economists have expected hiring to slow down.
“It’s inevitable to see a slower pace of job growth at this stage of an economic cycle,” Richard Moody, chief economist at Regions Financial, told MarketWatch. “You’d figure it would settle down.”
For economy watchers, the coming week will bring important reports, but as was the case last week, they won’t arrive until Friday. We’ll get a look at June retail sales, the Consumer Price Index for the same month and the University of Michigan’s preliminary Consumer Sentiment Index for July.
Economists’ consensus forecast is that the Commerce Department will say retail sales rose just 0.1 percent, although when auto sales are excluded, the prediction is for a gain of 0.6 percent after a 0.4 percent gain in May. A gain would strengthen the perception that rising consumer spending fueled second-quarter growth.
There are also expectations, however, that the consumer’s mood, as reflected by the University of Michigan’s survey, slipped a bit. The forecast is for a reading of 92.0, down from 93.5 at the end of June, perhaps as a reaction to developments such as the Brexit vote.
Despite the financial markets’ rebound since that vote, Reuters reported that some stock investors are still cautious, uncertain about what rate course the Federal Reserve will take, possible ripple effects as the U.K. leaves the EU and the volatile U.S. presidential election campaign.
"It just strikes me there are just too many things that can go wrong over the next couple of months," Phil Orlando, chief equity market strategist, at Federated Investors, in New York, told Reuters.